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Optimal Product Variety in Radio Markets

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Abstract

A vast theoretical literature shows that inefficient market structures may arise in free entry equilibria. Previous empirical work demonstrated that excessive entry may obtain in local radio markets. Our paper extends that literature by relaxing the assumption that stations are symmetric, allowing instead for endogenous station differentiation along both (observed) horizontal and (unobserved) vertical dimensions. We find that, in most broadcasting formats, a social planner who takes into account the welfare of market participants (stations and advertisers) would eliminate 50%-60% of the stations observed in equilibrium. In 80%-94.9% of markets that have high quality stations in the observed equilibrium, welfare could be unambiguously improved by converting one such station into low quality broadcasting. In contrast, it is never unambiguously welfare-enhancing to convert an observed low quality station into a high quality one. This suggests local over-provision of quality in the observed equilibrium, in addition to the finding of excessive entry.

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  • Steven Berry & Alon Eizenberg & Joel Waldfogel, 2015. "Optimal Product Variety in Radio Markets," Cowles Foundation Discussion Papers 2023, Cowles Foundation for Research in Economics, Yale University.
  • Handle: RePEc:cwl:cwldpp:2023
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    3. Iris Grant & Iris Kesternich & Johannes Van Biesebroeck, 2022. "Entry Decisions And Asymmetric Competition Between Non‐Profit And For‐Profit Homes In The Long‐Term Care Market," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(2), pages 631-670, May.
    4. Matthew Gentzkow & Jesse M. Shapiro & Michael Sinkinson, 2014. "Competition and Ideological Diversity: Historical Evidence from US Newspapers," American Economic Review, American Economic Association, vol. 104(10), pages 3073-3114, October.
    5. Maican, Florin & Orth, Matilda, 2021. "Determinants of economies of scope in retail," International Journal of Industrial Organization, Elsevier, vol. 75(C).
    6. Mogens Fosgerau & Julien Monardo & André de Palma, 2019. "The Inverse Product Differentiation Logit Model," Working Papers hal-02183411, HAL.
    7. Isaiah Andrews & Matthew Gentzkow & Jesse M. Shapiro, 2017. "Measuring the Sensitivity of Parameter Estimates to Estimation Moments," The Quarterly Journal of Economics, Oxford University Press, vol. 132(4), pages 1553-1592.
    8. repec:hal:spmain:info:hdl:2441/4ec86lkes59hv9tfv77ld1p5fr is not listed on IDEAS
    9. Imke Reimers, 2019. "Copyright and Generic Entry in Book Publishing," American Economic Journal: Microeconomics, American Economic Association, vol. 11(3), pages 257-284, August.
    10. Guangyu Cao & Ginger Zhe Jin & Xi Weng & Li‐An Zhou, 2021. "Market‐expanding or Market‐stealing? Competition with network effects in bike‐sharing," RAND Journal of Economics, RAND Corporation, vol. 52(4), pages 778-814, December.
    11. Steven Berry & Martin Gaynor & Fiona Scott Morton, 2019. "Do Increasing Markups Matter? Lessons from Empirical Industrial Organization," Journal of Economic Perspectives, American Economic Association, vol. 33(3), pages 44-68, Summer.
    12. Joseph Kuehn, 2020. "Strategic Complementarities in Bank Branching Decisions," Journal of Industrial Economics, Wiley Blackwell, vol. 68(4), pages 640-692, December.
    13. Robert Clark & Yiran Gong, 2021. "Why Do Some New Products Fail? Evidence from the Entry and Exit of Vanilla Coke," Working Paper 1475, Economics Department, Queen's University.
    14. Daniel Chaves, 2022. "Market Power, Taxation and Product Variety in the Brazilian Automobile Industry," University of Western Ontario, Departmental Research Report Series 20227, University of Western Ontario, Department of Economics.
    15. Sharat Ganapati, 2018. "The Modern Wholesaler: Global Sourcing, Domestic Distribution, and Scale Economies," Working Papers 18-49, Center for Economic Studies, U.S. Census Bureau.
    16. José Tudón, 2022. "Prioritization vs. congestion on platforms: evidence from Amazon's Twitch.tv," RAND Journal of Economics, RAND Corporation, vol. 53(2), pages 328-355, June.
    17. Aurelija Burinskienė, 2023. "Competition Prospects in Regulated Market of a Baltic Country," Economies, MDPI, vol. 11(2), pages 1-12, February.
    18. Xuan Teng, 2022. "Self-Preferencing, Quality Provision, and Welfare in Mobile Application Markets," CESifo Working Paper Series 10042, CESifo.
    19. Marc Ivaldi & Jiekai Zhang, 2022. "Platform Mergers: Lessons from a Case in the Digital TV Market," Journal of Industrial Economics, Wiley Blackwell, vol. 70(3), pages 591-630, September.
    20. In Kyung Kim, 2017. "Competition and Retailer Product Choice: Evidence from the Movie Theater Market," Working Papers 1704, Nazarbayev University, Department of Economics, revised Mar 2018.
    21. Yu-Hsi Liu & Darlene C. Chisholm & George Norman, 2023. "Product-Line Decisions and Rapid Turnover in Movie Markets," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 62(4), pages 341-365, June.
    22. Maican, Florin & Orth, Matilda, 2018. "Inventory Behavior, Demand, and Productivity in Retail," CEPR Discussion Papers 13308, C.E.P.R. Discussion Papers.
    23. Ivaldi, Marc & Zhang, Jiekai, 2020. "Platform Mergers: Lessons from a Case in the Digital TV Market," CEPR Discussion Papers 14895, C.E.P.R. Discussion Papers.
    24. Marc Ivaldi & Jiekai Zhang, 2022. "Platform mergers: lessons from a case in the digital TV market," Post-Print hal-03881366, HAL.
    25. Steven Berry & Alon Eizenberg & Joel Waldfogel, 2016. "Fixed Costs and the Product Market Treatment of Preference Minorities," Journal of Industrial Economics, Wiley Blackwell, vol. 64(3), pages 466-493, September.

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    More about this item

    Keywords

    Product differentiation; Excess entry; Radio;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • 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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