Market Provision of Public Goods: The Case of Broadcasting

This paper studies the market provision of a specific type of public good: radio and television broadcasts. Its main focus is to explore the ability of the market to provide broadcasting efficiently in a world in which broadcasters earn revenues by selling time to advertisers and advertisements provide information to consumers about new products. The paper shows that market provided broadcasts may feature too few or too many commercials, depending on the relative sizes of their social benefit and their nuisance cost to viewers. In addition, the market may provide too few or too many types of programs, depending on the relative size of viewing benefits and the benefits to advertisers from contacting viewers. The possibility of both under and over-provision of advertisements and programming, means that there are ranges of the parameters for which the market provides broadcasting close to efficiently. The paper also considers whether the market performs better under monopoly or competition and studies how the ability to charge viewers subscription prices impacts market performance.

[1]  P. Steiner.  Program Patterns and Preferences, and the Workability of Competition in Radio Broadcasting , 1952 .

[2]  Charles M. Tiebout.  A Pure Theory of Local Expenditures , 1956, Journal of Political Economy.

[3]  P. Samuelson.  Aspects of Public Expenditure Theories , 1958 .

[4]  P. Samuelson.  Public Goods and Subscription TV: Correction of the Record , 1964, The Journal of Law and Economics.

[5]  Jora R. Minasian.  Television Pricing and the Theory of Public Goods , 1964, The Journal of Law and Economics.

[6]  R. Coase.  The Economics of Broadcasting and Government Policy , 1966 .

[7]  P. Nelson.  Advertising as Information , 1974, Journal of Political Economy.

[8]  M. Spence.  Product Selection, Fixed Costs, and Monopolistic Competition , 1976 .

[9]  Avinash Dixit,et al.  Advertising and Welfare , 1976 .

[10]  Jack H. Beebe.  Institutional Structure and Program Choices in Television Markets , 1977 .

[11]  Bruce M. Owen,et al.  Television Programming, Monopolistic Competition, and Welfare , 1977 .

[12]  Carl Shapiro,et al.  Advertising and Welfare: Comment , 1980 .

[13]  R. Kihlstrom,et al.  Advertising as a Signal , 1984, Journal of Political Economy.

[14]  C. Shapiro,et al.  Informative Advertising with Differentiated Products , 1984 .

[15]  Todd Sandler,et al.  The Theory of Externalities, Public Goods, and Club Goods , 1986 .

[16]  H. Varian,et al.  On the private provision of public goods , 1986 .

[17]  Paul R. Milgrom,et al.  Price and Advertising Signals of Product Quality , 1986, Journal of Political Economy.

[18]  J. Geanakoplos,et al.  Free Entry and Social Inefficiency , 1986 .

[19]  W. Oakland.  Theory of public goods , 1987 .

[20]  J. Andreoni.  Privately provided public goods in a large economy: The limits of altruism , 1988 .

[21]  Kevin M. Murphy,et al.  A Simple Theory of Advertising as a Good , 1993 .

[22]  The Economics of Television Regulation: A Survey with Application to Australia , 1992 .

[23]  Steinar Holden.  Network or pay-per-view?: A welfare analysis , 1993 .

[24]  A model of the audience for TV broadcasting implications for advertising competition and regulation , 1993 .

[25]  Television Advertising Regulation and Program Quality , 1994 .

[26]  Theodore C. Bergstrom,et al.  Hotelling Location Problems with Directional Constraints: An Application to Television News Scheduling , 1995 .

[27]  Joel Waldfogel,et al.  Free Entry and Social Inefficiency in Radio Broadcasting , 1996 .

[28]  Concentration and public policies in the broadcasting industry: the future of television , 1997 .

[29]  M. Chwe.  Believe the Hype : Solving Coordination Problems with Television Advertising , 1998 .

[30]  Chris Doyle.  Programming in a competitive broadcasting market: entry, welfare and regulation , 1998 .

[31]  C. Sunstein,et al.  Private Broadcasters and the Public Interest: Notes Toward a 'Third Way' , 1999 .

[32]  George S. Ford,et al.  Is Radio Advertising a Distinct Local Market? An Empirical Analysis , 1999 .

[33]  Steven T. Berry,et al.  Mergers, Station Entry, and Programming Variety in Radio Broadcasting , 1999 .

[34]  Mark Armstrong,et al.  Competition in the Pay-TV Market , 1999 .

[35]  Joel Waldfogel,et al.  Public Radio in the United States: Does it Correct Market Failure or Cannibalize Commercial Stations? , 1999 .

[36]  Didier Laussel,et al.  TV-broadcasting competition and advertising , 2000 .

[37]  Claus Thustrup Hansen,et al.  Pay-per-view broadcasting of outstanding events: consequences of a ban , 2001 .

[38]  J. Rochet,et al.  Platform competition in two sided markets , 2003 .