Optimal Product Variety in Radio Markets

Steven Berry, Alon Eizenberg, Joel Waldfogel

NBER Working Paper No. 21621
Issued in October 2015
NBER Program(s):Industrial Organization

A vast theoretical literature shows that inefficient market structures may arise in free entry equilibria. The inefficiency may manifest itself in the number, variety, or quality of products. Previous empirical work demonstrated that excessive entry may obtain in local radio markets. Our paper extends that literature by relaxing the assumption that stations are symmetric, allowing instead for endogenous station differentiation along both horizontal and vertical dimensions. Importantly, we allow station quality to be an unobserved station characteristic. We compute the optimal market structures in local radio markets and find that, in most broadcasting formats, a social planner who takes into account the welfare of market participants (stations and advertisers) would eliminate 50%-60% of the stations observed in equilibrium. In 80%-95% of markets that have high quality stations in the observed equilibrium, welfare could be unambiguously improved by converting one such station into low quality broadcasting. In contrast, it is never unambiguously welfare-enhancing to convert an observed low quality station into a high quality one. This suggests local over-provision of quality in the observed equilibrium, in addition to the finding of excessive entry.

download in pdf format
   (958 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w21621

Published: Steven Berry & Alon Eizenberg & Joel Waldfogel, 2016. "Optimal product variety in radio markets," RAND Journal of Economics, RAND Corporation, vol. 47(3), pages 463-497, 08. citation courtesy of

Users who downloaded this paper also downloaded* these:
Berry, Eizenberg, and Waldfogel w20488 Fixed Costs and the Product Market Treatment of Preference Minorities
Feenstra and Ma w13703 Optimal Choice of Product Scope for Multiproduct Firms under Monopolistic Competition
Aguiar and Waldfogel w21653 Streaming Reaches Flood Stage: Does Spotify Stimulate or Depress Music Sales?
Berry and Haile w21500 Identification in Differentiated Products Markets
Ho and Rosen w21641 Partial Identification in Applied Research: Benefits and Challenges
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us