DP10835 Preference Externalities in Media Markets

Author(s): Simon P Anderson, Joel Waldfogel
Publication Date: September 2015
Keyword(s): broadcasting, differentiation, entry, media markets, preference externalities
JEL(s):
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=10835

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.