The John M. Olin Center

Paper Abstract

Untitled Document

35. Ivan Reidel, The Price of Fame: The Antitrust Law and Economics of Broadcasting, Music and Advertising, 7/2010.

Abstract: Why do we watch and listen to so many ads on radio and television when we would rather not? Why are most songwriters in the U.S. and elsewhere unable to make a living out of their creative efforts, but the few that can are often rewarded more than all others combined? Are these the features of efficient or otherwise desirable markets? Three separate strands of economic literature spanning over more than two decades on the economics of superstars, the structure and performance of broadcasting markets and the economics of music licensing suggest that these features are staples of rather well functioning markets, and that in fact there isn’t much to regret about this state of affairs. Superstardom is a direct consequence of talent, or perhaps consumer choice or bandwagon effects. Advertising likely provides valuable information, but even uninformative advertising is essential to fund the commercial radio or television programs that people do want to consume: “reduce it, and broadcasters won’t be able to afford high quality content” the argument goes. Courts, Congress, government agencies and legal scholars have long relied on many of these economic theories to decide antitrust cases, guide government oversight efforts, and engineer laws and regulations in broadcasting and music licensing markets. In this article I challenge the dominant economic analysis of these markets and show that more than six decades of antitrust oversight and enforcement efforts in these markets by U.S. courts, Congress and government agencies have been utterly misguided. It is in large part because of such misguided efforts, this article argues, that we presently experience inefficiently high levels of advertising, skewed income distributions for songwriters and reduced audience welfare. After examining one of the most far reaching and enduring regulatory efforts in U.S. history, I expand the economic understanding of these markets and leverage a novel analytical framework to show how legal scholarship, building on faulty economics, has evolved its own series of misguided policies. On this understanding I suggest that courts are indeed compelled by antitrust law to begin this market transformation and declare current licensing practices in broadcasting and music markets illegal and that the Antitrust Division of the Department of Justice is equally compelled to either abandon or radically modify its oversight over Performing Rights Organizations. I conclude with a proposal for market design that eludes most of the pitfalls of current market structure and likely results in vast welfare improvements all while substantially reducing unnecessary oversight expenditures.