Working Paper: CEPR ID: DP6699
Authors: Howard Smith; Catherine O'Gorman
Abstract: Reducing fixed cost duplication - a common justification for concentrated market structure - motivated the US government to relax the number of radio stations a firm could operate in any local market. After deregulation the number of firms per market decreased. The implied cost saving depends on the per market fixed costs incurred by each firm. Using data from 140 markets we estimate upper and lower bounds to fixed costs using (i) an empirical model of gross profit and (ii) the assumption that the observed post-deregulation market structure is a Nash equilibrium. The estimates suggest that the efficiency savings were significant.
Keywords: moment inequalities
JEL Codes: L10; L40; L82
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Deregulation (L51) | Reduction in number of firms per market (L10) |
| Reduction in number of firms per market (L10) | Lower per-market fixed costs (D49) |
| Deregulation (L51) | Lower per-market fixed costs (D49) |
| Imposing pre-1992 ownership limits (G18) | Increased fixed costs (G31) |