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Preference Externalities: An Empirical Study of Who Benefits Whom in Differentiated-Product Markets

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  • Waldfogel, Joel

Abstract

Theory predicts that in markets with increasing returns, the number of differentiated products, and the tendency to consume, will grow in market size. I document this phenomenon across 247 U.S. radio markets. By a mechanism that I term "preference externalities," an increase in the size of the market brings forth additional products valued by others with similar tastes. But who benefits whom? I document sharp differences in preferences between black and white, and between Hispanic and non-Hispanic, radio listeners. As a result, preference externalities are large and positive within groups, and they are much smaller and nonmonotonic across groups. Copyright 2003 by the RAND Corporation.

Suggested Citation

  • Waldfogel, Joel, 2003. "Preference Externalities: An Empirical Study of Who Benefits Whom in Differentiated-Product Markets," RAND Journal of Economics, The RAND Corporation, vol. 34(3), pages 557-568, Autumn.
    • Handle: RePEc:rje:randje:v:34:y:2003:i:3:p:557-68
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    References listed on IDEAS

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    1. Michael Spence, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Oxford University Press, vol. 43(2), pages 217-235.
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    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media

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