Handbook of Media Economics, vol 1A

CHAPTER 1

Preference Externalities in Media

Markets

Simon P. Anderson*, Joel Waldfogel

†

*

Commonwealth Professor of Economics, University of Virginia, Charlottesville, VA, USA

†

Frederick R. Kappel Chair in Applied Economics, Carlson School of Management, University of Minnesota, Minneapolis,

MN, USA

Contents

1.1. Introduction 4

1.2. Fixed Costs and Heterogeneous Preferences 6

1.2.1 Fixed Costs 6

1.2.2 Preference Heterogeneity 7

1.2.3 Willingness to Consume Second-Choice Products 9

1.2.4 Advertiser Finance 9

1.2.5 Change in Costs over Time 10

1.3. Theory 10

1.3.1 Classic Models 11

1.3.1.1 Preference Externalities with Spectrum Constraints: Steiner and Beebe Models 11

1.3.1.2 The Tyranny of the Yuppies 13

1.3.1.3 Lowest Common Denominator 14

1.3.2 Spatial Models ...