Working Paper: CEPR ID: DP10835
Authors: Simon P. Anderson; Joel Waldfogel
Abstract: Media industries typically exhibit two fundamental features, high fixed costs and heterogeneity of consumer preferences. Daily newspaper markets, for example, tend to support a single product. In other examples, such as radio broadcasting, markets often support multiple differentiated offerings. Both contexts can deliver preference externalities, when the options and well-being for consumers depend on the number and mix of consumers according to their content preferences. This chapter presents evidence on these fundamental features of media markets. We then incorporate these features into a suite of theoretical models to obtain both a description of media markets as well as predictions for how they would be expected to function. In a third section we turn to ?results,? i.e. empirical evidence on the questions illuminated by the theoretical models. We then explore the effects of technological change, and we suggest directions for future work.
Keywords: broadcasting; differentiation; entry; media markets; preference externalities
JEL Codes: L82; D43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| structure of preferences across different consumer groups (D11) | market outcomes (P42) |
| market size (L25) | number of products (C69) |
| market size (L25) | consumer welfare (D69) |
| high fixed costs in media markets (L11) | limited number of products available to consumers (L15) |
| limited number of products available to consumers (L15) | preference externalities (D62) |
| preference externalities (D62) | negative impact on another group's access to desired media (F69) |
| heterogeneous consumer preferences (D11) | different media consumption patterns (L82) |
| different media consumption patterns (L82) | types of media products offered in the market (L82) |
| increased entry of products in response to larger consumer base (F61) | enhanced consumer welfare (D18) |
| larger consumer base (F61) | increased entry of products (F19) |
| majority preferences dominate market offerings (D40) | negative externalities for minority preferences (J15) |