Jeziorski (2014b) estimates the fixed-cost synergies associated with operating multiple
stations that are either in the same market but in different formats, or in both the same
market and the same format using a dynamic model of endogenous mergers and product
repositioning.
70
He finds that both types of efficiency are substantial. In particular, the
fixed cost of operating a second station in the same local market is estimated to be only
44% of the fixed cost of operating the first station, although the synergies become smaller
when more stations are added, while operating a second station in the same format is
estimated to reduce fixed costs by an additional 38%. The dollar value of these propor-
tional efficiencies are estimated to vary greatly with market size, as per station fixed costs,
for independent owners, and are estimated to be more than $10 million in the largest
markets, but less than $ 100,000 in small markets.
Three features of the data and the model lead to the large percentage estimates of syn-
ergies. First, there was rapid consolidation in the period after 1996 and, while this pattern
can partly be rationalized by market power motivations, the fixed-cost synergies provide
an additional motivation, in particular for adding a second station. Second, firms were
more likely to buy, and maintain, additional stations that were in the same format as their
existing stations than would be justified by revenue maximization given the estimated
parameters. Third, multi-station firms choose not to take stations off air even though they
are cannibalizing audiences. This final source of identification is problematic, as the FCC
would likely have removed the licenses of firms that kept stations off the air and reissued
them to competitors. This threat would likely remove the incentive to take stations off air
even without synergies.
O’Gorman and Smith (2008) estimate large efficiencies from operating multiple sta-
tions in the same local market using a static model where firms choose how many stations
to operate. For example, their estimates imply that operating a second station only incurs
an additional fixed cost equal to around 50% of the cost of operating one station. This
estimate is therefore quite consistent with Jeziorski’s, although their model is far simpler.
However, this model also fails to account for the fact that if one firm does not operate a
station, the FCC would likely license a competitor to do so. Based on a dynamic model
estimated using only information on format-switching decisions, and not merger deci-
sions,
Sweeting (2013) also finds some evidence of efficiencies of operating multiple local
stations in the same format, although they are generally not statistically significant and
they are smaller than those in Jeziorski.
71
70
In Jeziorski (2014b), marginal cost efficiencies in selling advertising time are not considered, so some of
these efficiencies may be attributed to fixed costs.
71
For computational reasons, Sweeting also ignores observations where a firm moves multiple stations at the
same time. However, as many of these moves involve moving stations into the same format, including
these in the estimation would likely produce larger estimates of efficiencies. Therefore, Sweeting’s esti-
mates are almost certainly underestimates.
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Handbook of Media Economics
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