3.1. INTROD UCTION
The goal of this chapter is to present empirical techniques useful for the empirical study of
media markets. These approaches will be familiar to students of contemporary empirical
industrial organization, but we will emphasize aspects and approaches most relevant to
the media markets.
Our task is to describe techniques that do two things: (i) are both suitable for dealing
with the fundamental economic conditions and data available of media markets; and
(ii) are consistent with theory and models in ways that allow both simulation of alterna-
tive policies and the calculation of objects of theoretical interest (e.g., welfare or con-
sumer surplus) as functions of the products entering the market. Hence we focus on
“structural” approaches at the exclusion of others, even though descriptive approaches
geared to causal inference are quite useful for analyses of media industries as well.
A few fundamental features of media markets (as emphasized elsewhere in this vol-
ume, see
Chapter 1) include high—and almost exclusively—fixed costs, preference het-
erogeneity, and a mix of user and advertiser finance. These features give rise to market
outcomes that can deviate in interesting ways from efficient arrangements, creating a
need for empirical modeling approaches usable for counterfactual simulation of alterna-
tive arrangements, such as impacts of mergers or planners’ optimal arrangements.
Media products are also special in that their consumption—for example of news
products—is often a means toward the end of becoming informed. Public policy has
an interest in media products in as much as the structure of the media market may have
an effect on civic engagement and, in particular, voting (see Chapters 13–19). This fur-
ther substantiates the need for methods for analyzing impacts of policies or regulations on
product positioning and media consumption.
An additional feature that is important for facilitating empirical analysis is that many
media markets have traditionally been local, with the consequence that one can observe
outcomes, including entry, product positioning, and consumption, that arise in geo-
graphic areas that differ in their demographic and economic size, as well as composition.
New technologies are eroding the distinctness of local markets, creating challenges that
we discuss at the conclusion.
Some inherent features of media markets give rise to data availability or its lack. The
ad-supported nature of media creates a need for audience measurement, which in turn
tends to create good data on the number of consumers using each product. Moreover, it is
possible in many contexts to observe consumption tendencies separately by demographic
and geographic groups. Prices, on the other hand, are often challenging to obtain. Some
products, such as terrestrial radio broadcasts and over-the-air television, have zero prices
to consumers. Other products, such as daily newspapers (along with movies and music),
often have uniform prices with so little variation that the identification of demand rela-
tionships can be challenging. While measures of ad prices, such as market-level ad
92 Handbook of Media Economics
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