Preference externalities: An empirical study of who benefits whom in differentiated-product markets

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Abstract

Theory predicts that in markets with increasing returns, the number of differentiated products, and the tendency to consume, will grow in market size. I document this phenomenon across 247 U.S. radio markets. By a mechanism that I 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 ? I document sharp differences in preferences between black and white, and between Hispanic and non-Hispanic, radio listeners. As a result, preference externalities are large and positive within groups, and they are much smaller and nonmonotonic across groups.

Original languageEnglish (US)
Pages (from-to)557-568
Number of pages12
JournalRAND Journal of Economics
Volume34
Issue number3
DOIs
StatePublished - 2003

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