CHAPTER 1
Preference Externalities in Media
Markets
Simon P. Anderson*, Joel Waldfogel
†
*
Commonwealth Professor of Economics, University of Virginia, Charlottesville, VA, USA
†
Frederick R. Kappel Chair in Applied Economics, Carlson School of Management, University of Minnesota, Minneapolis,
MN, USA
Contents
1.1. Introduction 4
1.2. Fixed Costs and Heterogeneous Preferences 6
1.2.1 Fixed Costs 6
1.2.2 Preference Heterogeneity 7
1.2.3 Willingness to Consume Second-Choice Products 9
1.2.4 Advertiser Finance 9
1.2.5 Change in Costs over Time 10
1.3. Theory 10
1.3.1 Classic Models 11
1.3.1.1 Preference Externalities with Spectrum Constraints: Steiner and Beebe Models 11
1.3.1.2 The Tyranny of the Yuppies 13
1.3.1.3 Lowest Common Denominator 14
1.3.2 Spatial Models 16
1.3.2.1 Negative Preference Externalities Under Monopoly 16
1.3.2.2 Preference Externalities Under Duopoly 17
1.3.3 Market Size and Equilibrium Media Diversity 20
1.3.4 Optimum Media Diversity 21
1.3.5 Cross-Group Externalities 22
1.3.6 Variety 23
1.3.7 Multiple Stations 25
1.4. Empirical Results: Facts Relevant to Predictions from Theory 28
1.4.1 The Own-Group Preference Externality 29
1.4.1.1 Market Size and Entry 29
1.4.1.2 Market Size and Variety 29
1.4.1.3 Market Size and Quality 30
1.4.1.4 Market Size and Consumption 32
1.4.2 Preference Externalities with Multiple Consumer Types 32
1.4.2.1 Preference Externalities in Markets with Few Products 32
1.4.2.2 Preference Externalities with Heterogeneous Consumers in Markets with Many Products 34
1.4.3 Efficient Entry and Preference Externalities 35
1.5. Technological Change, Fixed Costs, and Preference Externalities 36
Acknowledgments 38
References 38
3
Handbook of Media Economics,Volume1A © 2016 Elsevier B.V.
ISSN 2213-6630,
http://dx.doi.org/10.1016/B978-0-444-62721-6.00001-9 All rights reserved.
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