Wednesday, August 17, 2011
Posted by D. Daniel Sokol
Ricard Gil, University of California, Santa Cruz asks Does Regulation Drive Market Competition? Evidence from the Spanish Local TV Industry.
ABSTRACT: This paper empirically examines whether regulation decreases market competition. For this purpose, I use data from Spanish local TV stations for 1996, 1999 and 2002. During this period of time, this industry transitioned from a state of allegality (no regulation in place whatsoever), to being highly regulated and finally to being liberalized. I estimate station population entry thresholds by number of entrants across years to proxy for the nature of competition by determining the necessary market size to sustain an extra station. I find that stations soften competition the most under no regulation and seem to compete the hardest when highly regulated. I explain in the paper that, even though this is at odds with previous literature, this result is explained by the industry's institutions, its low profitability and the nature of the first regulation and its consequent liberalization.