Market power in the media : a structural empirical analysis of the radio broadcasting industry, 1998-2003

An easing of media ownership regulations led to a wave of mergers and acquisitions in the U.S. radio broadcasting industry during the late 1990s and early 2000s. Its effects on advertising, programming, quality, and competition have been controversial and will have an important impact on the future of media ownership regulation. Previous empirical studies of media consolidation have not fully accounted for the diverse demographic compositions of audiences or for the negative externality that advertising imposes on listeners. This research employs a "two-sided market" model of multi-station broadcasters who choose programming, advertising, and quality for their radio stations to balance the marginal effects of advertising and listening on each side of the market. The structural parameter estimates describe listener substitution patterns among stations, the effects of advertisements on audiences and advertisers, and the cost structure for broadcasters. The results quantify the incentives under and subsequent welfare implications of radio ownership regulation.

Cross-sectional differences in demographics, market size, market structure, and economic conditions across U.S. radio markets provide a rich data set which I observe in 1998 and 2003. I use Arbitron, Inc.'s station ratings to estimate listener preferences over radio programming formats with overlapping characteristics, which depend largely on demographic characteristics. I use market advertising prices to estimate the demand for audience size and composition. In the model, broadcasters consider listeners' taste for quality and distaste for advertising when choosing optimal strategies. Firms compete in two-stages: first, they enter and choose the formats for their stations. Second, they choose optimal levels of advertising and quality. Nash equilibrium profit-maximizing conditions at each stage identify not only the audience and advertiser demand but also firms' strategic and cost-saving incentives under multiple station ownership.

The results show that programming changes due to consolidation led more stations to cluster in popular formats and to raise advertising levels. The average listener finds this to be a net benefit compared to 1998. However, counter-factual experiments show that listeners also prefer the diversity of programming and low advertising levels offered by independently owned stations. Broadcasters, on the other hand, find that consolidation leads to higher station revenues and profits.

Note: Abstract extracted from PDF file via OCR.

Digitization of this thesis was made possible by a generous grant from the Jefferson Trust, 2015.

Thesis originally deposited on 2016-03-14 in version 1.28 of Libra. This thesis was migrated to Libra2 on 2017-03-23 16:37:23.