American Commercial Television; Competition, Collusion, Regulation

Abstract

This paper’s objective is to use economic theory to predict behavior of the National Association of Broadcasters (NAB), a commercial broadcast television trade association. To make predictions about a trade association of television stations, it is necessary to understand behavior of television stations broadcasting in a market with no trade association. Advertisers wish to show commercials to television viewers. Thus, television stations sell the exposure of viewers to commercials. A station in a market with no television trade association maximizes profit from sale to advertisers of commercial exposures. A television station uses three inputs to produce commercial exposures. A station can change the number of commercials in a program, change the type of program broadcast, or change program quality. A television trade association wishes to increase profit to existing television stations. An association achieves this objective by lobbying to prevent entry by new commercial television stations and entry by alternatives to commercial broadcast television. A television trade association is unable to control price or output of commercial exposures. Because of the difficulty of measuring other inputs to commercial exposures, a trade association can only control the number of commercials of member stations. To encourage voluntary membership, a television trade association offers valuable products to member stations at prices below what non-members pay and makes association membership known to all stations. Behavior of the NAB is consistent with predictions. NAB lobbying is used to restrict entry. Provisions of the Television Code of the NAB restrict the number of commercials shown by member stations. Regression analysis shows increased profit to stations in markets where a high proportion of stations are code members. Because the television industry is so extensively regulated by the federal government, predicting behavior of stations and their trade association also requires understanding government regulation of television broadcasting. Government regulators, such as the Federal Communications Commission, maximize political support by responding to preferences of all politically powerful interest groups. The NAB cannot rely on consistent favorable regulation because the FCC also responds to preferences of a large number of other broadcast interest groups.