Broadcasting Competition and

Programming Costs

David Genesove Hebrew University of Jerusalem and CEPR

Comments by Lisa GeorgeDepartment of EconomicsHunter College and the Graduate School, CUNY

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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

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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

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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