Free entry into markets with decreasing average costs and differentiated products can result in an inefficient number of firms and suboptimal product variety. Because new firms and products draw their customers in part from existing products, concentration can affect incentives to enter as well as how to position products. This paper examines how product variety in the radio industry is affected by changes in ownership structure. While it is in general difficult to measure the effect of concentration on other factors such as the number of products and the extent of product variety, the 1996 Telecommunications Act substantially relaxed local radio ownership restrictions, giving rise to a major and exogenous consolidation wave. Between 1993 and 1997 the average Herfindahl index in major US media markets increased by almost 65 percent. Using a panel data set on 243 U.S. radio broadcast markets in 1993 and 1997, we find that concentration reduces entry and increases product variety. Our results are consistent with spatial preemption. Jointly owned stations broadcasting from the same market are more likely than unrelated stations - and more likely than jointly owned stations in different markets - to broadcast in similar formats.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
7080.
Length: Date of creation: Apr 1999 Date of revision: Handle: RePEc:nbr:nberwo:7080
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Find related papers by JEL classification: L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance L8 - Industrial Organization - - Industry Studies: Services
References listed on IDEAS 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.:
Kenneth L. Judd, 1983.
"Credible Spatial Preemption,"
Discussion Papers
577, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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