much of a good thing: if the minority gets too powerful, it may cause the market to tip to
the other station type. Or indeed, in the benign case, it may simply lead to a station of its
own type being added.
There are thus two cases of interest. As we show, which one holds depends on
whether F is larger or smaller than M
B
exps + exp sðÞ
1 + exps exp sðÞ
(note that this expression is larger than
M
B
exps
1 + exps
, which is the stand-alone profit from the B’s). Even if the s taste parameter were
the same across markets, the numbers of each type are not, and so we can see various
different patterns in a cross-sectional analysis.
Consider first the case F 2 M
B
exps
1 + exps
, M
B
exps + exp sðÞ
1 + exps exp sðÞ
. For low enough M
W
there
is no station at all, because there are not enough B ’s to cover the fixed cost on their own.
As M
W
rises, it becomes profitable to have a single station, and it is a b type (because the
B’s carry more economic weight). As M
W
rises further, but still is below M
B
, there is
enough profit in the market for a station of each type to survive.
28
To summarize, the
progression as M
W
rises is no firm, then a b -type, then a w -type too.
29
The preference externalities for this case are all positive (at the switch-point bet-
ween regimes—and zero elsewhere) for both types. The B’s need enough W’s to
float a first station. Adding further W’s enables another station to enter. It is a w-type,
and this benefits both groups, though the W’s benefit more than the B’s for the addi-
tion. The next (complementary) case highlights the possibility of negative preference
externalities.
Now consider the case F 2 M
B
exps + exp sðÞ
1 + exps exp s
ðÞ
, M
B
. Again, think of raising M
W
; the
first threshold crossed is again the market’s ability to support a firm, and it is a b-type.
However, now as M
W
rises further, the fixed cost is quite large, and indeed (from the
condition given) there is no room for two firms for M
W
< M
B
(and for M
W
at least a
bit above M
B
). However, once M
W
passes M
B
,aw-type is more profitable than a b-type.
Thus, the b-type is displaced. The equilibrium sequence (as a function of increasing M
W
)
is then no firm, b-type only, w-type only.
The preference externality is clearly beneficial to both types as M
W
rises above the first
threshold, and the market is served. However, the second threshold is where the b-type
gets replaced by a w-type, and the market retains a single firm. This favors the W-types,
28
To see that both survive, note indeed that the market can support one firm of each type (but no more) at
M
W
¼M
B
, where profit of each firm (by symmetry) is then M
B
exps + exp sðÞ
1 + expsexp sðÞ
, which is below the entry cost
by assumption in this case.
29
What happens if M
W
increases further? More and more ws enter, and at some point (depending on param-
eter values) the b actually switches type. This is the pattern suggested in the analysis below of the contin-
uous case. In the next case considered, the type-switching occurs immediately (in the sense that there is no
intervening regime where both types coexist).
24
Handbook of Media Economics