Preference Externalities: An Empirical Study of Who Benefits Whom in Differentiated Product Markets
Theory predicts that in markets with increasing returns, the number of differentiated products and resulting consumer satisfaction grow in market size. We document this phenomenon across 246 US radio markets. By a mechanism that we 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? We examine the patterns of and mechanisms for preference externalities between black and white and between Hispanic and non-Hispanic radio listeners, and among listeners of different age groups. The patterns are striking: while preference externalities are large and positive within groups, they are small and possibly negative across groups. For example, while black-targeted station entry and the black listening share increase in black population, they are unaffected (or possibly reduced) by the size of the white population. Consequently, small groups receive less variety from the market. Forces that increase the size of the market, such as emerging satellite and Internet technologies, may increase the satisfaction of individuals whose preferences do not match their fellow local residents'.
|Date of creation:||Oct 1999|
|Date of revision:|
|Publication status:||published as Waldfogel, Joel. "Preference Externalities: An Empirical Study Of Who Benefits Whom In Differentiated-Product Markets," Rand Journal of Economics, 2003, v34(3,Autumn), 557-568.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Spence, Michael, 1976. "Product Differentiation and Welfare," American Economic Review, American Economic Association, vol. 66(2), pages 407-14, May.
- Bresnahan, T.F & Reiss, P.C., 1989.
"Entry And Competition In Concentrated Markets,"
151, Stanford - Studies in Industry Economics.
- Michael Spence & Bruce Owen, 1977. "Television Programming, Monopolistic Competition, and Welfare," The Quarterly Journal of Economics, Oxford University Press, vol. 91(1), pages 103-126.
- Steven T. Berry & Joel Waldfogel, 1999. "Mergers, Station Entry, and Programming Variety in Radio Broadcasting," NBER Working Papers 7080, National Bureau of Economic Research, Inc.
- Timothy F. Bresnahan & Peter C. Reiss, 1990. "Entry in Monopoly Market," Review of Economic Studies, Oxford University Press, vol. 57(4), pages 531-553.
- Antonio Ciccone & Robert E. Hall, 1993.
"Productivity and the Density of Economic Activity,"
NBER Working Papers
4313, National Bureau of Economic Research, Inc.
- Michael Spence, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Oxford University Press, vol. 43(2), pages 217-235.
- Steven T. Berry & Joel Waldfogel, 1999.
"Free Entry and Social Inefficiency in Radio Broadcasting,"
RAND Journal of Economics,
The RAND Corporation, vol. 30(3), pages 397-420, Autumn.
- Steven Berry & Joel Waldfogel, 1996. "Free Entry and Social Inefficiency in Radio Broadcasting," NBER Working Papers 5528, National Bureau of Economic Research, Inc.
- Severin Borenstein, 1988. "On the Efficiency of Competitive Markets for Operating Licenses," The Quarterly Journal of Economics, Oxford University Press, vol. 103(2), pages 357-385.
- Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
- Dixit, Avinash K & Stiglitz, Joseph E, 1977.
"Monopolistic Competition and Optimum Product Diversity,"
American Economic Review,
American Economic Association, vol. 67(3), pages 297-308, June.
- Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:7391. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.