Free entry and social inefficiency in radio broadcasting

Steven T. Berry, Joel Waldfogel

Research output: Contribution to journalArticlepeer-review

119 Scopus citations

Abstract

In theory, free entry can lead to social inefficiency. We study the radio industry in a first attempt to quantify this inefficiency. Using cross-sectional data on advertising prices, the number of stations, and radio listening, we estimate the parameters of listeners' decisions and of firms' profits. Relative to the social optimum, our estimates imply that the welfare loss (to firms and advertisers) of free entry is 45% of revenue. However, the free entry equilibrium would be optimal if the marginal value of programming to listeners were about three times the value of marginal listeners to advertisers.

Original languageEnglish (US)
Pages (from-to)397-420
Number of pages24
JournalRAND Journal of Economics
Volume30
Issue number3
DOIs
StatePublished - 1999

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