The welfare and equity implications of competition in television broadcasting: the role of viewer tastes

Abstract

This paper studies the behavior of commercial television broadcasters in markets where the distribution of viewer tastes varies. Our results show that a highly "clustered" market enables the broadcaster to offer a program of a popular type but with lower quality (i.e., lower production values) than is the case when viewers have more diffused tastes. We find that viewer equity in the television market (i.e., the percentage of all potential viewers who have at least one program they consider worth watching) and viewer welfare (i.e., total consumer surplus) may not coincide. Depending upon the distribution of viewer tastes and the cost of providing quality programming, the number of broadcasters required to fully cover the market to avoid market failure may be greater than the number of broadcasters that produce greater viewer welfare. The study suggests that regulatory bodies need to pay attention to the distribution pattern of viewer tastes and the broadcasters' desire for return on programming investments, since both factors have important implications for competitive outcomes and viewer well-being.