Finance and Economics Discussion Series (FEDS)
December 2009
A Dynamic Analysis of Consolidation in the Broadcast Television Industry
Abstract:
This paper estimates a dynamic oligopoly model in order to separately identify the demand-side and cost-side advantages of consolidation in the broadcast television industry. I exploit an exogenous change in regulation that led to significant industry consolidation. Using revenue and ownership data for broadcast stations over the past ten years, I estimate the effect of ownership changes on revenue. I recover costs by examining patterns in ownership changes that are left unexplained by revenue estimation. I model firms' purchasing decisions as a dynamic game, and estimate the game using a two-step estimation method recently developed by Bajari, Benkard & Levin (2007). This is the first paper to estimate a model of merger activity in a dynamic, strategic setting. I find that there are both revenue and cost advantages to consolidation, but they operate through different mechanisms. Access to a wider audience enables firms to increase per-station advertising revenue, while simply owning more stations enables firms to reduce per-station operating costs. A firm's ability to realize these benefits is affected by its stations' network affiliations, locations and viewers.
Full paper (Screen Reader Version)Keywords: Dynamic oligopoly, structural estimation, market structure
PDF: Full Paper
Disclaimer: The economic research that is linked from this page represents the views of the authors and does not indicate concurrence either by other members of the Board's staff or by the Board of Governors. The economic research and their conclusions are often preliminary and are circulated to stimulate discussion and critical comment. The Board values having a staff that conducts research on a wide range of economic topics and that explores a diverse array of perspectives on those topics. The resulting conversations in academia, the economic policy community, and the broader public are important to sharpening our collective thinking.