Fixed Costs and the Product Market Treatment of Preference Minorities

34 Pages Posted: 15 Sep 2014

See all articles by Steven Berry

Steven Berry

Yale University - Department of Economics; National Bureau of Economic Research (NBER); Yale University - Cowles Foundation

Alon Eizenberg

Hebrew University of Jerusalem - Department of Economics

Joel Waldfogel

University of Minnesota - Twin Cities - Carlson School of Management; National Bureau of Economic Research (NBER); University of Minnesota - Twin Cities - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: September 2014

Abstract

It is well documented that, in the presence of substantial fixed costs, markets offer preference majorities more variety than preference minorities. This fact alone, however, does not demonstrate the market outcome is in any way biased against preference minorities. In this paper, we clarify the sense in which the market outcome may in fact be biased against preference minorities, and we provide some conditions for such bias to occur. We then estimate the degree of bias in a particular industry using an empirical model of entry into radio broadcasting with two types of listeners, a preference majority and a minority, and the two types of stations targeting those respective listeners. Listening model estimates are used to infer fixed costs, which can then be used to find optimal station configurations as well as the welfare weights on different groups that rationalize the current configuration. The ensuing estimates reveal welfare weights that are 2-3 times higher for whites than blacks, and 1.5-2 times higher for non-Hispanic than Hispanic, listeners. The difference between the black and Hispanic results arises from the different patterns of importing and exporting: Hispanics listen to non-Hispanic-targeted stations more than blacks listen to white-targeted stations; and whites listen to black-targeted stations more than non-Hispanics listen to Spanish-language stations. Researchers and policy makers might add product markets to labor markets and other contexts that warrant attention for disparate treatment of minorities.

Suggested Citation

Berry, Steven T. and Eizenberg, Alon and Waldfogel, Joel, Fixed Costs and the Product Market Treatment of Preference Minorities (September 2014). NBER Working Paper No. w20488, Available at SSRN: https://ssrn.com/abstract=2496244

Steven T. Berry (Contact Author)

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Alon Eizenberg

Hebrew University of Jerusalem - Department of Economics ( email )

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Joel Waldfogel

University of Minnesota - Twin Cities - Carlson School of Management ( email )

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Minneapolis, MN 55455
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

University of Minnesota - Twin Cities - Department of Economics ( email )

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Minneapolis, MN 55455
United States

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