TY  - JOUR
AU  - Waldfogel,Joel
TI  - Preference Externalities: An Empirical Study of Who Benefits Whom in Differentiated Product Markets
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7391
PY  - 1999
Y2  - October 1999
UR  - http://www.nber.org/papers/w7391
L1  - http://www.nber.org/papers/w7391.pdf
N1  - Author contact info:
Joel Waldfogel
Frederick R. Kappel Chair in Applied Economics
3-177 Carlson School of Management
University of Minnesota
321 19th Avenue South
Minneapolis, MN 55455
Tel: 612/626-7128
E-Mail: jwaldfog@umn.edu
AB  - Theory predicts that in markets with increasing returns, the number of differentiated products and resulting consumer satisfaction grow in market size. We document this phenomenon across 246 US radio markets.  By a mechanism that we term 'preference externalities', an increase in the size of the market brings forth additional products valued by others with similar tastes.  But who benefits whom?  We examine the patterns of   and mechanisms for   preference externalities between black and white and between Hispanic and non-Hispanic radio listeners, and among listeners of different age groups.  The patterns are striking: while preference externalities are large and positive within groups, they are small and possibly negative across groups.  For example, while black-targeted station entry and the black listening share increase in black population, they are unaffected (or possibly reduced) by the size of the white population. Consequently, small groups receive less variety from the market. Forces that increase the size of the market, such as emerging satellite and Internet technologies, may increase the satisfaction of individuals whose preferences do not match their fellow local residents'.
ER  -