Who Benefits Whom in Local Television Markets?

Urban economists have recently devoted substantial attention to exploring the production-side benefits of cities.¹ The consumption-side benefits of agglomeration have received far less attention.² Separately, empirical studies of entry in industrial organization tend to use geographic markets as observations. These studies, such as Bresnahan and Reiss, make use of the relationship between market size and the number of firms operating to draw inferences about the effects of entry on pricing behavior.³ These studies show, incidentally, that larger markets tend to have more firms. When consumption data are available, studies often show that in larger markets, a higher fraction of the population consumes a product in the industry being studied. Other studies have begun to document the relationship between market size and the distribution of product qualities offered.⁴

Although they were not originally directed at urban economists, these studies' results may be of interest to urban economics. They show empirically that when production carries substantial fixed costs, larger markets can offer more, more varied, and sometimes higher-quality products. Ensuing broader product options can increase consumer welfare by offering more types of consumers options they prefer; and product variety can draw a higher share of residents to consumption. In this sense people can benefit one another, by agglomeration into local product markets, in their capacity as fellow product consumers.

But consumers need not benefit one another equally. A final strand of recent industrial economic research of possible interest to urban economists asks "who benefits whom" in differentiated product markets. This research examines the relationship between the distribution of product-preferring consumers in the market and the mix of products offered. Using local media markets as examples, this strand documents that consumers will benefit one another only to the extent that they bring forth products that also appeal to others, which, in turn, will occur only if they share similar preferences. Again, this research uses geographic markets as a means of observing multiple markets. In so doing, however, the work documents results of possible importance for urban economics by showing starkly different within-group and across-group distribution of agglomeration benefits through product markets. This paper continues this line by examining effects of white and minority consumers on each other in local television markets.

Blacks and whites (and Hispanics and non-Hispanics) have substantially different preferences in media products. The radio formats attracting two-thirds of black listeners collectively attract less than 5 percent of white listeners.⁵ In markets with two daily papers, black readership tends to be heavily concentrated in only one of them.⁶ Local markets with larger black populations have more black-targeted radio stations and daily papers that cater more heavily to black consumers' tastes. Moreover, blacks are more likely to consume local radio and daily newspaper products in markets with more heavily black populations. As a consequence, blacks and whites are better off, in their capacity as local media consumers, as their markets have larger black and white populations, respectively.

The scope for these sorts of effects to operate in markets is larger, the higher fixed costs are relative to market size. This is why black and white consumers affect one another more significantly in daily newspaper markets, which have only a handful of products per market, than in local radio markets, averaging twenty-five stations per market.

Unlike daily papers and radio, which are predominantly local media, television is a mixed local-national medium. Much programming, including network prime time and almost all cable channels, is uniform across place. However, outside of prime time, local broadcast stations, including both independent stations and affiliates of networks (such as ABC, CBS, or Fox), determine much of their programming locally. The latter set of programming decisions allows a mechanism for television consumers to affect their fellow local residents. Yet, given widespread availability of a large number of specialized national cable (and satellite) channels...