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Optimal product variety in radio markets
Author(s) -
Berry Steven,
Eizenberg Alon,
Waldfogel Joel
Publication year - 2016
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/1756-2171.12134
Subject(s) - social planner , broadcasting (networking) , planner , welfare , product (mathematics) , quality (philosophy) , variety (cybernetics) , work (physics) , radio broadcasting , social welfare , microeconomics , economics , business , telecommunications , industrial organization , computer science , computer network , market economy , mathematics , engineering , philosophy , geometry , epistemology , artificial intelligence , political science , programming language , mechanical engineering , law
A vast theoretical literature explores inefficient market structures in free‐entry equilibria, and previous empirical work demonstrated that excessive entry may obtain in local radio markets. We extend that literature by relaxing the assumption that stations are symmetric, allowing for endogenous horizontal and (unobserved) vertical station differentiation. We find that, in most broadcasting formats, a social planner who takes into account the welfare of market participants eliminates 50%–60% of the observed stations. In 80%–94.9% of markets where high‐quality stations are observed, welfare could be unambiguously improved by converting one such station into low‐quality broadcasting, suggesting local overprovision of quality.