Consumer Valuation of Media as a Function of Local Market Structure
Posted: 17 Sep 2011
Date Written: June 22, 2011
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: Suggested Citation