Working Paper: NBER ID: w7391
Authors: Joel Waldfogel
Abstract: Theory predicts that in markets with increasing returns, the number of differentiated products and resulting consumer satisfaction grow in market size. We document this phenomenon across 246 US radio markets. By a mechanism that we term 'preference externalities', an increase in the size of the market brings forth additional products valued by others with similar tastes. But who benefits whom? We examine the patterns of and mechanisms for preference externalities between black and white and between Hispanic and non-Hispanic radio listeners, and among listeners of different age groups. The patterns are striking: while preference externalities are large and positive within groups, they are small and possibly negative across groups. For example, while black-targeted station entry and the black listening share increase in black population, they are unaffected (or possibly reduced) by the size of the white population. Consequently, small groups receive less variety from the market. Forces that increase the size of the market, such as emerging satellite and Internet technologies, may increase the satisfaction of individuals whose preferences do not match their fellow local residents'.
Keywords: No keywords provided
JEL Codes: L13; L82
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| market size (L25) | consumer satisfaction (D12) |
| market size (L25) | positive preference externalities (within homogeneous groups) (D62) |
| increase in black population (R23) | increase in black-targeted radio stations (R23) |
| increase in black-targeted radio stations (R23) | increase in consumer satisfaction among black consumers (D12) |
| increase in white population (J11) | satisfaction of black consumers (D12) |
| market size (L25) | interaction between market size and number of available radio stations (L96) |