TY - JOUR
T1 - Free entry and social inefficiency in radio broadcasting
AU - Berry, Steven T.
AU - Waldfogel, Joel
N1 - Copyright:
Copyright 2018 Elsevier B.V., All rights reserved.
PY - 1999
Y1 - 1999
N2 - In theory, free entry can lead to social inefficiency. We study the radio industry in a first attempt to quantify this inefficiency. Using cross-sectional data on advertising prices, the number of stations, and radio listening, we estimate the parameters of listeners' decisions and of firms' profits. Relative to the social optimum, our estimates imply that the welfare loss (to firms and advertisers) of free entry is 45% of revenue. However, the free entry equilibrium would be optimal if the marginal value of programming to listeners were about three times the value of marginal listeners to advertisers.
AB - In theory, free entry can lead to social inefficiency. We study the radio industry in a first attempt to quantify this inefficiency. Using cross-sectional data on advertising prices, the number of stations, and radio listening, we estimate the parameters of listeners' decisions and of firms' profits. Relative to the social optimum, our estimates imply that the welfare loss (to firms and advertisers) of free entry is 45% of revenue. However, the free entry equilibrium would be optimal if the marginal value of programming to listeners were about three times the value of marginal listeners to advertisers.
UR - http://www.scopus.com/inward/record.url?scp=0033469688&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=0033469688&partnerID=8YFLogxK
U2 - 10.2307/2556055
DO - 10.2307/2556055
M3 - Article
AN - SCOPUS:0033469688
VL - 30
SP - 397
EP - 420
JO - RAND Journal of Economics
JF - RAND Journal of Economics
SN - 0741-6261
IS - 3
ER -