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Broadcasting Competition and Programming Costs

Broadcasting Competition and Programming Costs. David Genesove Hebrew University of Jerusalem and CEPR Comments by Lisa George Department of Economics Hunter College and the Graduate School, CUNY. Overview. Competing Effects of Competition on Program Quality

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Broadcasting Competition and Programming Costs

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  1. Broadcasting Competition and Programming Costs David Genesove Hebrew University of Jerusalem and CEPR Comments by Lisa George Department of Economics Hunter College and the Graduate School, CUNY

  2. Overview • Competing Effects of Competition on Program Quality • More Firms → More Competition for Listeners → Incentives to Attract Listeners → Higher Quality Programs (Direct Effect) • Fewer Firms → Higher Ad Revenue per Listener → Incentives to Attract Listeners → Higher Quality Programs (Indirect Effect) • Dominant Effect Depends on Disutility of Distance / Disutility of Ads • Theoretical Contribution • Extension of Salop’s Circular City • Extend Choi (2006), Armstrong & Weeds (2006) to Non-Linear Transport Cost • Result: When Transport Cost a Super-Unitary Power of Distance (targeting extra-important), Quality Increases with N and Dominates Ad Effect • Empirical Framework • Goal: Estimate Effect of Concentration on Quality (Overall & Conditional on Ad Revenue) • Setting: Expansion of AM Radio in 1940’s • Data • Quality = Programming Cost • Station Advertising Revenue • Concentration = Number of Stations • Estimation Strategy • Instruments: Concurrent & Lagged Economic Growth • FCC Freeze – Concentration Differenced Out • Wartime Entry – Exogenous

  3. Results • Effect of Concentration on Quality (Overall and Conditional) • OLS – Both Zero • IV – Overall effect large but statistically insignificant • IV-- Conditional effect is zero. • Effect of Concentration on Ad Revenue • OLS – Zero • IV Positive but weakly significant • Results suggest convex distance function (decreasing marginal disutility of distance) • Programming expenditures sensitive to market size

  4. Comments • Useful, Practical Model • Paper Structure • Market for Talent -- Theoretical and Empirical Aside • Free Entry Equilibrium – Theoretical Aside • Empirical Road Map • Graphs of stations, revenue, programming? • Describe what is estimated & why (estimation variables vs. structural variables) • Separate OLS & IV? • Need to consider estimation challenges & biases along with data (Section 3 & 4) • Interpret coefficients alone and in terms of structural equation • Other Estimation Issues • Relationship between program expenditure & quality over time? • Restricted 1944 sample? • Network Shows – All Stations? • Multi-station firms? • Multiplication Factor – 2.5

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