Consumer Valuation of Media as a Function of Local Market Structure

Posted: 17 Sep 2011

See all articles by Scott Savage

Scott Savage

University of Colorado at Boulder - Department of Economics

Donald M. Waldman

University of Colorado at Boulder - Department of Economics

Date Written: June 22, 2011

Abstract

This study examines the effects of media market structure on consumer demand and welfare. A differentiated-product model is used to estimate demand for the local media environment, described by the offerings from newspapers, radio, television, the Internet and Smartphone. Results show that the representative consumer values more different viewpoints in the reporting of information on news and current affairs, more information on community news, and more information that reflects the interests of women and minorities. Consumers have a distaste for advertising. Demand estimates are used to calculate the expected change in consumer welfare from a merger between two television stations that lowers the amount of diversity and advertising in local media environments. Welfare decreases following the merger, but these losses decrease with the number of television stations in the market. For example, the average consumer in a “small market” loses $0.11 per month, whereas the average consumer in a “large market” loses $0.04 per month. These losses are equivalent to $6 million annually for all small-market households in the U.S. and $1.4 million annually for large-market households. If the merger occurs in all markets, aggregate consumer welfare losses would be about $91 million.

Keywords: differentiated product, market structure, merger, welfare

JEL Classification: C9, C25, L13, L82, L96

Suggested Citation

Savage, Scott and Waldman, Donald M., Consumer Valuation of Media as a Function of Local Market Structure (June 22, 2011). Available at SSRN: https://ssrn.com/abstract=1928118

Scott Savage (Contact Author)

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309
United States
303-735-1165 (Phone)
303-492-1112 (Fax)

HOME PAGE: http://holiday.colorado.edu/savages/

Donald M. Waldman

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309-0256
United States
303-492-6781 (Phone)
303-492-8960 (Fax)

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