Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Monday, January 25, 2010

A dynamic analysis of consolidation in the broadcast television industry

Posted by D. Daniel Sokol

Jessica C. Stahl (Federal Reserve) addresses 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.

http://lawprofessors.typepad.com/antitrustprof_blog/2010/01/a-dynamic-analysis-of-consolidation-in-the-broadcast-television-industry-.html

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