The Effects of Regulation on Economies of Scale and Scope in TV Broadcasting

62 Pages Posted: 1 Aug 2011

See all articles by Jeffrey A. Eisenach

Jeffrey A. Eisenach

NERA Economic Consulting; American Enterprise Institute

Kevin W. Caves

Econ One Research

Date Written: June 27, 2011

Abstract

This paper presents an analysis of the effects of FCC regulations on economies of scale and scope in television broadcasting, including their effects on the production of local news. We conclude that current FCC regulations are limiting, and potential future regulations could further limit, the ability of broadcasters to realize beneficial economies of scale and scope, thereby lowering economic returns to broadcasting, depressing investment below the economically optimal level, significantly reducing the output of news programming, and threatening to shrink the size of the industry. Using standard econometric methods and station-level financial data spanning 1995 through 2009, we find that, all else equal, smaller broadcast stations face higher average costs than larger stations. Specifically, we estimate that, as broadcast stations expand the scale of their operations, output increases approximately 22 percent faster than costs. With this in mind, we analyze the effects of existing and potential regulatory limitations on broadcasters’ ability to evolve their business models so as to realize available economies of scale and scope.

Suggested Citation

Eisenach, Jeffrey A. and Caves, Kevin W., The Effects of Regulation on Economies of Scale and Scope in TV Broadcasting (June 27, 2011). Available at SSRN: https://ssrn.com/abstract=1894941 or http://dx.doi.org/10.2139/ssrn.1894941

Jeffrey A. Eisenach (Contact Author)

NERA Economic Consulting

1255 23rd Street, NW, Suite 600
Washington, DC 20037
United States
202-448-9029 (Phone)
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HOME PAGE: http://www.nera.com

American Enterprise Institute ( email )

1150 17th Street, N.W.
Washington, DC 20036
United States

Kevin W. Caves

Econ One Research ( email )

United States

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