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A dynamic analysis of consolidation in the broadcast television industry

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  • Jessica C. Stahl

Abstract

This paper estimates a dynamic oligopoly model in order to separately identify the demand-side and cost-side advantages of consolidation in the broadcast television industry. I exploit an exogenous change in regulation that led to significant industry consolidation. Using revenue and ownership data for broadcast stations over the past ten years, I estimate the effect of ownership changes on revenue. I recover costs by examining patterns in ownership changes that are left unexplained by revenue estimation. I model firms' purchasing decisions as a dynamic game, and estimate the game using a two-step estimation method recently developed by Bajari, Benkard & Levin (2007). This is the first paper to estimate a model of merger activity in a dynamic, strategic setting. I find that there are both revenue and cost advantages to consolidation, but they operate through different mechanisms. Access to a wider audience enables firms to increase per-station advertising revenue, while simply owning more stations enables firms to reduce per-station operating costs. A firm's ability to realize these benefits is affected by its stations' network affiliations, locations and viewers.

Suggested Citation

  • Jessica C. Stahl, 2009. "A dynamic analysis of consolidation in the broadcast television industry," Finance and Economics Discussion Series 2009-48, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2009-48
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    Keywords

    Television broadcasting;

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