Media Mergers with Preference Externalities and Their Implications for Content Diversity, Consumer Welfare, and Policy

Abstract

One of the primary concerns regarding media mergers involves their potential adverse effect on content/viewpoint diversity. This paper presents a formal treatment of the influence that within-group consumer preference externalities over media content have on a media outlet’s incentive to engage in product repositioning both before and after merging with another media outlet. We first present a model of consumer behavior under preference externalities and derive aggregate consumer expenditure functions for media output. It is shown that even assuming the merged entity sets a uniform price and content mix across market areas, the relative access to some minority (majority) group subscribers will increase (decrease) post-merger (and vice versa). We derive sufficient conditions under which the merged entity will in fact have an incentive to homogenize its post-merger price/content mix. And while the post-merger repositioning effects arguably suggest the consumer welfare implications of such mergers are ambiguous a priori, it is posited that the observed idiosyncratic preferences for media content among demographic groups may translate into significant losses to consumer welfare in some instances and may also adversely affect some individuals’ participation in civil affairs, such as voting. Finally, the relation of the model to previous empirical work on media mergers and diversity, and the potential for non-traditional policy interventions to offset the competitive harms of such transactions, are also discussed.