I would like to thank Jerry Hausman, Igal Hendel, Aviv Nevo, Amil Petrin, Ariel Pakes, Rob Porter, Steve Berry, Pat Bayer, Peter Arcidiacono, Kate Ho, Allan Collard-Wexler, Paul Ellickson, Arie Beresteanu, three referees, and seminar participants for valuable comments. I would like to thank the National Association of Broadcasters and the Center for the Study of Industrial Organization at Northwestern University for financial support. All errors are my own.
Dynamic Product Positioning in Differentiated Product Markets: The Effect of Fees for Musical Performance Rights on the Commercial Radio Industry
Article first published online: 18 SEP 2013
© 2013 The Econometric Society
Volume 81, Issue 5, pages 1763–1803, September 2013
How to Cite
Sweeting, A. (2013), Dynamic Product Positioning in Differentiated Product Markets: The Effect of Fees for Musical Performance Rights on the Commercial Radio Industry. Econometrica, 81: 1763–1803. doi: 10.3982/ECTA7473
- Issue published online: 18 SEP 2013
- Article first published online: 18 SEP 2013
- Manuscript received October, 2007; final revision received July, 2012.
- Product differentiation;
- dynamic oligopoly;
- value function approximation;
This article predicts how radio station formats would change if, as was recently proposed, music stations were made to pay fees for musical performance rights. It does so by estimating and solving, using parametric approximations to firms' value functions, a dynamic model that captures important features of the industry such as vertical and horizontal product differentiation, demographic variation in programming tastes, and multi-station ownership. The estimated model predicts that high fees would cause the number of music stations to fall significantly and quite quickly. For example, a fee equal to 10% of revenues would cause a 4.6% drop in the number of music stations within 2 1/2 years, and a 9.4% drop in the long run. The size of the change is limited, however, by the fact that many listeners, particularly in demographics that are valued by advertisers, have strong preferences for music programming.