Let's now consider the general question of whether ownership consolidation
lowers the variety available in the marketplace.
The important change here is the Telecommunications Act of 1996.
Among many other things, this act made radio mergers much easier to pull off.
According to one measure of concentration, the Herfindahl Index, after this act,
concentration in the market increased by about 65%.
According to economic theory,
what should be the effect of market consolidation on product variety?
Well, in a basic model, there are three effects,
and let's talk about each one of those.
First, a move toward greater consolidation will mean that
the owner will make programming for various stations more different,
and that means more variety.
This will be done in part to avoid head-on competition
of one owned firm against another owned firm owned by the same company.
From the owner's point of view,
that firm-on-firm competition is wasteful and it cannibalizes their own markets.
So, it's just like how you don't see one McDonald's put right next
to another McDonald's. What would be the point of that?
The McDonald's tend to spread out somewhat over space,
and you can think of this effect as spreading out styles of music
across a kind of stylistic space of music.
So you're getting more variety rather than less.
Second, the newly consolidated ownership will simply shut down
some number of stations or make station growth lower
than it otherwise would have been.
Of course, on net, this will tend to hurt product variety.
Third, the consolidated owner will tend to maintain a diverse array of programming
to avoid giving competitors a market niche or an opening of some kind
to grab a segment of consumers.
So for instance, if you own a big chunk of the radio stations
in a fairly large market,
you'll try to cover all the main styles like rap music, country music,
classic rock, and so on,
just so there's no space for your competitors to get a foothold,
and then later grow to compete against you even more.
This effect will tend to boost product variety.
In sum, we have two effects which boost product variety
and one effect which will limit it.
So, let's take a look at what the data say.
Obviously, not all sectors of media are always going to give the same results,
but in one study, there was a look at data,
and there was a comparison of 1993 to 1997
with of course the deregulation coming in 1996.
The study examined 243 US markets,
and variety was measured for radio by the number of formats in a market.
So, is there country? Is there AOR? That's album-oriented rock.
Is there alternative? And so on.
There's a pretty simple way of measuring
how much musical diversity you find in programming.
Once greater consolidation is allowed, what we find, not surprisingly,
are the biggest concentration increases in the largest markets.
And what are the results in those markets? Well, it's pretty striking.
One thing we find is smaller station growth.
So, stations are growing in percentage terms by a smaller amount
than otherwise would have been expected.
We also find greater growth in terms of formats.
That is, there is more diversity in terms of styles of music.
There are more stations playing more different kinds of music,
but even for a given station, there is a greater growth
in the number of formats per station.
So you will have more stations which specialize in playing
two, three, four different kinds of music depending upon the day or time of day.
And it's striking because this is, as we saw,
exactly what the model predicts.
That is, there is some decline in the rate of growth of new stations,
but you have more formats both across stations and within given stations,
and that will translate into higher product variety.
Of course, this is not all proof that similar results
will hold in every area of media.
Two key lessons:
The first is that market concentration doesn't have to hurt variety.
We find this in some data, but also, it's a general result from theory.
This is perhaps counterintuitive,
but that's one reason why economic models are useful.
The second point is that firms with market power,
very often, they internalize some of the externalities across the product space.
What that really means is
when a firm controls a large segment of the market,
it will not want to cannibalize its own programs,
and this will lead to a spread of different styles
and often a greater amount of product variety.
All of these results are taken from a very good paper
by Berry and Waldfogel called,
"Do Mergers Increase Product Variety from Radio Broadcasting?"
This paper is available online.