On the Substitutability of Local Newspaper, Radio, and Television Advertising in Local Business Sales. By C. Anthony Bush

Transcription

1 FEDERAL COMMUNICATIONS COMMISSION MEDIA BUREAU STAFF RESEARCH PAPER Meda Ownershp Wrkng Grup On the Substtutablty f Lcal Newspaper, Rad, and Televsn Advertsng n Lcal Busness Sales September 2002 By C. Anthny Bush

2 On the Substtutablty f Lcal Newspaper, Rad, and Televsn Advertsng n Lcal Busness Sales C. Anthny Bush, Ph.D. Chef Ecnmst Offce f General Cunsel The vews expressed n ths paper are thse f the authr alne and d nt necessarly reflect the vews f the Federal Cmmuncatns Cmmssn, any Cmmssners, r ther staff. 2

3 Executve Summary A current plcy ssue s whether there s a sngle lcal meda market r several dstnct lcal markets fr newspaper, rad, and televsn advertsng. An mprtant step n defnng a market s the estmatn f elastctes f demand. In ths study we present a mdel f lcal busness behavr n purchasng advertsng fr use n sales actvtes. Usng reprted data n lcal rad and televsn advertsng revenue cntaned n the 2001 BIA s Master Access Database and usng data frm the Newspaper Asscatn f Amerca n retal ad expendtures, estmates f elastctes f substtutn, rdnary wn- and crss-prce elastctes are derved fr a representatve lcal busness establshment. The estmated elastctes f substtutn and the estmated rdnary crss-prce elastctes suggest weak substtutablty between lcal meda. In addtn, the rdnary demand elastcty fr a retal ad n a newspaper s apprxmately unty and negatve. Demands fr bth lcal rad and lcal televsn ads are nelastc. Fnally, the data supprt the specfed mdel f lcal busness advertsng. An mprtant caveat t these results s that varyng degrees f measurement errr are asscated wth lcal rad revenue and revenue frm retal ads n newspapers. Due t these lmtatns nherent n the underlyng data, the results f ths study cannt be cnsdered cnclusve. The results, hwever, are cnsstent wth ecnmc thery. 3

4 Intrductn Sectn 202 (h) f the Telecmmuncatns Act f 1996 drects the Federal Cmmuncatns Cmmssn t revew ts bradcast wnershp rules every tw years n lght f cmpettve develpments. In cnductng such revews, the Cmmssn may need t cnsder the extent t whch establshed lcal meda cmpete wth each ther fr advertsng dllars. The specfc plcy cncern s whether there s a sngle lcal meda market r several dstnct lcal markets fr newspaper, rad, and televsn advertng. Ths study s ntended t cntrbute t that evaluatn. An mprtant step n defnng a market s the estmatn f elastctes f demand. Therefre, n ths study, we estmate elastctes f substtutn fr lcal newspaper, lcal rad, and lcal televsn advertsng meda. Ordnary wn- and crss-prce elastctes f demand are als estmated. We nte that ths study evaluates the extent f substtutablty f the three largest lcal meda televsn, rad, and daly newspapers. We d nt attempt t address whether cable televsn r ther advertsng vehcles such as drect mal and utdr advertsng cmpete wth lcal televsn, rad and daly newspapers fr lcal advertsng dllars. Lterature The lterature n nter-meda substtutablty n advertsng can be dvded nt tw brad categres. Frst, there s natnal advertsng that s asscated wth natnal sales f prduct/servces. Secnd, there s lcal meda advertsng by lcal busnesses. Several authrs have studed natnal advertsng. McCullugh and Waldn (1998) examne the substtutablty f netwrk advertsng and natnal spt advertsng. They assume an aggregate sales functn and rely n dualty n rder t specfy the share equatns f a translg cst functn. Three share equatns are cnsdered: (1) the share f netwrk advertsng, (2) the share f natnal spt televsn advertsng, and (3) and the share f a cmpste f all ther advertsng frms. Usng McCann-Ercksn whch spans the years 1960 t 1994, the 4

5 authrs estmate Mrshma elastctes f substtutn. McCullugh and Waldn fnd that televsn netwrk advertsng and natnal spt televsn advertsng are substtutes. Slk, Klen, and Berndt (2001) use a translg mdel n ther evaluatn f nter-meda substtutablty. In addtn, ther analyss permts fr the cmplementary use f meda n natnal sales. Ther translg mdel represents the advertsng csts f natnal sales. The share equatns f the mdel are: (1) drect mal, magaznes, newspapers, spt rad, netwrk televsn, netwrk rad, spt televsn, and utdr. The parameters f the mdel are estmated based n natnal data fr the perd cverng 1960 t Estmates f wn- and crss-prce elastctes fr the varus meda are presented. Slk, Klen, and Berndt cnclude that demands fr the varus meda are nelastc. In addtn, they suggest that weak crss-meda effects are cnsstent wth ndustry practces n whch meda plannng s cnducted as a multstage decsn prcess. In ths prcess nter-meda chces are made prmarly n strategc and creatve grunds. That s ntal meda buys are lkely t be a mx f meda. Prce-senstvty s shwn n subsequent ntra-meda cmparsns. Seldn, Jewell, and O Bren (2000) nvestgate meda substtutablty and ecnmes f scale n advertsng. These authrs use a translg cst functn t mdel advertsng cst f frms that manufacture beer. The nputs t the sale f beer are prnt, televsn, and rad. Bth the translg functn and meda share equatns are smultaneusly estmated. Ther data are n U.S. beer frms. The data are quarterly and cver the perd 1983 t Mrshma elastctes f substtutn and prce elastctes f demand are estmated. Seldn, Jewell, and O Bren fnd that all advertsng meda are substtutes n the sellng f beer. In addtn, evdence f dsecnmes f scale n advertsng s presented. There s sme research n nter-meda substtutablty n lcal advertsng markets. Ekelund (1999) et al. evaluate whether a market fr rad servces by advertsers exsts ndependently f ther lcal advertsng markets. Ther methd fr dentfyng a rad market s based n the DOJ Merger Gudelnes. Ther apprach cnssts f determnng whether cndtns ext such that a hypthetcal mnplst culd prftably and ptmally rase prce. T ths end, Ekelund cmpares a calculated Lerner 5

6 Index fr rad wth the recprcal f the estmated wn prce elastcty f demand fr rad. The ssue f meda substtutablty arses n ther specfcatn f the functnal frm f demand. The authrs estmated a duble-lg mdel wth the lg f revenue as a dependent varable. Bna fde explanatry varables are the prces f rad, televsn, newspaper, and ttal retal sales. The unt f bservatn n ths crss sectnal study s an Arbtrn market frm BIA s Master Access Database. Ths BIA database als prvded nfrmatn n ttal rad revenues r expendtures by frms n rad n an Arbtrn Market. All data are frm the year The prce f rad and televsn are taken frm the SQAD database. The prces fr bth rad and televsn are bth cst per ratng pnt ( CPP ). Newspaper advertsng prces are based n the prce f a ne-nch, black-and-whte, ne day advertsement n [Arbtrn] markets. These prce data are frm the Newspaper Advertsng Surce. Ekelund et al present estmates f wn-prce and crss-prce elastctes. Cmparng measures f peratng margns, e.g., cash flw, and estmated wn-prces elastcty f-2.101, these authrs cncluded that the rad market cnsttutes an anttrust market. On the ssue f nter-meda substtutablty, demand crss-prce elastctes are fund t be sgnfcant at the ten percent level. In a separate paper, Ekelund and the same c-authrs cnduct an analgus analyss f televsn. Agan, the 1995 BIA Master Access Database s used t dentfy revenues frm Desgnated Market Areas ( DMA ). Bth televsn and rad ad prce s the cst per ratng pnt frm SQAD. A duble-lg specfcatn s used, where the lg f televsn advertsng revenue r expendture s the dependent varable. Explanatry varables are the lg f retal sales, the prce f a televsn ad, the prce f a rad ad, and the prce f a ne-nch, black-and-whte, ne day advertsement n DMA. Own- and crss- prce elastctes are estmated. Bth the crss-prce elastctes f demand fr rad and newspaper are pstve, and the rad crss-prce elastcty s pstve at a fve percent level f sgnfcance. Hwever, n ths analyss ther calculated Lerner Index and the recprcal f ther estmated elastcty des nt suggest that a hypthetcal mnplst culd prftably and ptmally ncrease advertsng prces. 6

7 The wrk f Ekelund et al. s lmted n ts generalty fr several reasns. Due t data lmtatns Ekelund culd nt dfferentate between natnal rad (televsn) buys and lcal rad (televsn) buys wthn an Arbtrn (DMA) market. As Slk et al. (2001) argue, aggregatng natnal and lcal market demand fr meda may hde dfferent patterns and levels f nter-meda substtutablty/cmplementarty amng mre fnely dsaggregated cmpnents. In addtn, ur examnatn f the Newspaper Advertsng Surce suggests that the explanatn f newspaper ad prce s ncmplete. The authrs d nt prvde the detals n whch newspapers are ncluded n the gegraphc area f analyss. Als detals n the aggregatn f newspaper prces nt a sngle newspaper prce are nt explaned. The Newspaper Advertsng Surce data suggest that numerus newspapers culd have been ncluded n the cnstructn f the cmpste prce fr lcal newspapers. Alternatvely, a sngle newspaper s prce culd have been used. Theretcal Framewrk Our fcus s n the use f meda by lcal busnesses. Fllwng Slk et al. (2001) we hypthesze that nter-meda buys by lcal frms are made n strategc grunds and that a mx f meda s used n advertsng t lcal cnsumers. We began by develpng the derved demand fr bradcast televsn, rad, and newspaper ads n a lcal market. Suppse that representatve frm A prvdes prduct/servce z n a lcal market. Fr smplcty f analyss, we assume that the gegraphc market fr prduct z r area f gegraphc dstrbutn f z s the same as the gegraphc market fr televsn, rad, and newspaper ads. That s the gegraphc market fr z, the lcal televsn ad market, the lcal rad ad market, and the lcal newspaper ad market all cncde. In these lcal meda markets, frm A s a prce taker, and, gven meda ad prces and the frm s meda budget, frm A emplys these lcal meda t sell z. We assume that all gds/servces markets are cmpettve and that frms are Bertrand cmpettrs. Entrepreneurs f frms, e.g., frm A, regard sales, hwever, as randm varables. Sales f frms are randm 7

8 because cnsumers face uncertanty. Gven perfect nfrmatn n prces and n transprtatn csts, cnsumers must als decde where t spend. Cnsumers chces f frms t patrnze are made n accrdance wth cnsumer cnvenence n daly rutne and wth the degree f uncertanty n daly events. We assume that all frms advertse under the belef that advertsng reduces varablty n sales and ncreases expected sales by remndng cnsumers f the exstence f the frm. In ths mdel newspaper, rad, and televsn are cmplementarly substtutable. Frm A uses a mx f meda n ts utreach t the targeted demgraphc grup f ptental buyers. If frm A buys televsn, t als buys sme rad and sme newspaper. As relatve meda prces change r as the effectveness f a partcular medum becmes knw, frm A substtutes t a partcular medum wthut necessarly abandnng the remanng meda. Fllwng Veblen (1919), captal and labr emplyed n advertsng (marketng) and n manufacturng are embedded n the cnstant return t scale prductn functn f the frm. The unt f utput, frm the prductn f gd z, s a salable gd wth specfc characterstcs, ncludng shape, clr, materal cmpstn, and cnsumer utreach thrugh advertsng (marketng) per unt fr the perd. Snce there s cnstant returns t scale n the prductn f gd z, there s a cnstant unt (margnal) cst, dented c fr frm A. Wth Bertrand cmpettn the market prce s p z = cz. 1 Prfts f frm A are Π = p SALES SALES c. A z A A z We assume that the entrepreneur f frm A maxmzes expected prft and that the entrepreneur f frm A prefers greater ncme frm emplyment f her captal and labr t less ncme. Thus, frm A maxmzes E( Π ) A max E( SALES).2 β N β R βt Expected sales are Φ ( X γ ) ( X γ ) ( X γ ), where Φ > 0 and where X, = { N : newspaper, R : rad, T : televsn}, s the quantty f medum purchased by frm A. The parameter, γ, s the base quantty f advertsng f medum, and the parameter β > 0 s the share f expendtures n medum. The prblem f frm A s N N R R T T β N β R βt max Φ ( X N γ N ) ( X R γ R ) ( X T γ T ) subject t Σ p X = BA. X N, X R, X N 8

9 The advertsng budget f frm A s unt cst f a salable prduct. The prce per unt f medum s B A whch s n ttal utlays and whch s embedded n the cnstant per p. Optmzng expected sales s smply the prblem f ptmzng the Stne-Geary utlty functn. The slutn t ths prblem s the well knwn Lnear Expendture System ( LES ). Expendtures n medum are P X = Σ a P + β B where a = ( 1 β ) γ, j, and a = β γ, j. j j j A, j = j j Emprcal Specfcatn and Estmatn Technque Leser s Transfrmatn f the Lnear Expendture System ( LES ) permts us t drectly estmate elastctes f substtutn. Leser s transfrmatn f the LES s _ = Σ σ j Ψjt + β t, where j y t v y t = v t p t x Ψ jt p = w v p jt t j ( p j p ) _ v t = m t 4 Σ x j= 1 j p jt An bservatn, representatve frm n a lcal market, s dented byt. The prce f medum s p t, and expendture n medum s v t. The sample mean f expendtures n medum s v. The sample mean values f the prce f medum and ttal expendtures are p and m, respectvely. Let x be the mean quantty f medum, and v p x x =. The average budget share at ths crdnate set s w = ( ). p m The parameter σ j s the elastcty f substtutn between medum and j. The parameter β s the 1 We can als thnk f the frm settng prce at the ntersectn f margnal cst and the mnmum f lngrun average ttal cst. 2 Because f cnstant return t scale, realzed sales ncrease the entrepreneur s ncme. 9

10 margnal expendture share. In ths system, hmgenety, symmetry, and addng up restrctns are mpsed. Three equatns are smultaneusly estmated fr ths derved demand system: Due t sngularty f the cvarance matrx, whch s a result f the addng-up restrctn, we estmate usng the ecnmetrc technque f Dhrymes (1984) and (1994). In ths prcedure, dfferent varables can appear n dfferent equatns, and t nt necessary t drp an equatn frm the system. After estmatn, wn prce elastctes are calculated at sample means. Data Revenue data are frm the 2001 BIA Master Access Database. Revenues are reprted fr televsn by DMA. Rad revenues are lsted by Arbtrn Rad Markets whch are cntaned n DMAs. At the tme f the wrk f Ekelund et al. the BIA data cntaned an unknwn mx f natnal and lcal advertsng revenue fr bradcast meda. The 2001 BIA database cntans, hwever, lcal advertsng revenues fr bth televsn and rad bradcastng 3. We tk a randm sample f DMAs. The sample cntans 45 DMAs, and the DMAs are lsted n Appendx A. We assume that lcal rad revenues f Arbtrn Markets wthn a DMA are ttal lcal rad revenues fr the DMA. Spt Qutatn and Data, Inc. ( SQAD ) data are the surce f bth lcal rad and televsn prces. Bth rad and televsn prces are n unts f cst per pnt ( CPP ) 4. Newspaper data are gathered and cnstructed frm several surces. Frst, the Newspaper Asscatn f Amerca reprts categres f newspaper advertsng expendtures/revenue fr the year The categres are: (1) natnal, (2) retal, and (3) classfed advertsng expendtures 5. Retal advertsng expendtures f $21,409 mlln are allcated acrss the entre unverse f DMAs. Thus, retal advertsng expendture fr a DMA s the prduct f $21,409 mlln and the allcatn factr fr that DMA. The allcatn factr fr a DMA s the rat f the ppulatn ver 16 years f age n a DMA t the 3 The share f lcal revenue s reprted fr each DMA. Lcal televsn revenue s the prduct f the lcal share and ttal revenue. Shares f lcal revenue ut f ttal revenue are prvded fr each rad market. Lcal rad revenue s the prduct f the lcal share and ttal rad revenue wthn the rad market. 4 SQAD reprts CPP prces fr bth rad and televsn by quarter, and we use 4 th quarter 2000 prces. Late news rates were used fr televsn and evenng rates were used fr rad. 10

11 ppulatn f the Unted States that s ver 16 years f age 6. Secnd, newspaper retal prces are frm the Newspaper Advertsng Surce. Fllwng Ekelund et al. (1999), prce s the charge fr a ne-nch, blackand-whte, ne-day advertsement.e., a Standard Advertsng Unt ( SAU ). We used Mnday thrugh Frday-Saturday prces. Fr every DMA f ur sample, we manually cllected these prce data n all dentfable newspapers. Snce the number f newspapers vares by DMA, ur measure f lcal retal prce fr a DMA s the mean prce fr newspapers n the DMA 7. Our thery predcts the use f lcal advertsng by a lcal busness n the sale f ts gds and/r servces. Ths mples that we must translate lcal meda revenues n a DMA nt meda expendtures f a representatve lcal busness n the DMA. Fr a gven DMA, newspaper retal revenue s dvded by busness establshments n that DMA, and the result s lcal newspaper expendtures by a representatve lcal busness 8. Expendture n lcal rad advertsng by a representatve lcal busness s the result f dvdng lcal rad advertsng revenue by busness establshments n that DMA. The expendture f a representatve lcal busness n lcal televsn advertsng s the lcal televsn revenue n the DMA dvded by the busness establshments n the DMA. Tw dummy varables are created t cntrl fr cmpettve effects that are asscated wth the sze r rank f a DMA. A dummy varable s assgned the value f ne when a DMA s rank s less than r equal t 10 (tp 10 DMAs), and, the varable s zer, therwse. A secnd dummy varable s assgned the value f ne when the rank f the DMA s between 11 and 50, and, the varable s zer, therwse. Results Ecnmc thery predcts that elastctes f substtutn can vary frm zer t nfnty. Fr ur functn f expected sales, an elastcty f zer wuld ndcate that there s n substtutablty between tw 5 Newspaper Asscatn f Amerca at webste 6 The surce f the ppulatn data s Census 2000, U.S. Census Bureau. Census 2000 ppulatn data are mapped nt DMAs. 7 Newspaper prces are presented by mnth. We used prces fr md-4th quarter (Nvember) Busness establshments n a cunty are frm Cunty Busness Patterns, U.S. Census Bureau (1997). We mapped cunty busness establshments nt DMAs. 11

12 meda snce an elastcty f substtutn 9 s a measure f par-wse substtutablty. Alternatvely, an elastcty f substtutn f nfnty ndcates that tw meda are perfect substtutes, e.g., televsn s a perfect substtute fr rad. Our results suggest weak substtutablty between lcal meda n the sales actvtes f lcal busnesses. Specfcally, wth respect t the three meda pars we studed, we fnd: Frst, the elastcty f substtutn between newspaper retal ads and lcal rad ads s Cmpared t the theretcal lmt f nfnty fr perfect substtutablty ths number s very small but statstcally sgnfcant. Secnd, the elastcty f substtutn between newspaper retal ads and lcal televsn ads s Ths number s als relatvely small but statstcally sgnfcant. Thrd, the elastcty f substtutn between lcal rad and lcal televsn s , and ths elastcty s nt statstcally dfferent frm zer. These results are presented n Table 1 f Chart A. Ordnary wn- and crss-prce elastctes are calculated at sample means. The results are presented n Table 2 f Chart A. Ordnary wn-prce elastctes f demand are negatve. The rdnary wn-prce elastcty fr a retal ad n a newspaper s Demands fr bth lcal rad advertsng and lcal televsn advertsng are nelastc. Lcal rad s wn-prce elastcty s , and the wn-prce elastcty fr televsn s Mrever, rdnary-crss prce elastctes f demand als suggest weak substtutablty and suggest that several meda are grss cmplements 11. The crss prce elastcty between newspaper retal ads and lcal rad ads s , whle the crss-prce elastcty between lcal rad and newspaper retal ads s The crss-prce elastctes fr newspaper retal ads and lcal televsn ads are negatve. In addtn, the crss-prce elastctes fr televsn and rad are negatve. All rdnary crss-prce elastctes are presented n Table 2 f Chart A. There are certan lmtatns asscated wth ths study as a result f the underlyng data that nfrms ur study. Specfcally, the study cntans varyng degrees f measurement errrs n certan 9 Elastctes f substtutn are techncal parameters that reveal the shape r curvature f the expected sales functn. 10 We assumed symmetry, and therefre, the elastcty f substtutn between lcal rad and newspapers retal ads s als

13 varables. Frst, lcal rad revenue wthn a DMA s ncmplete because BIA des nt reprt revenue data fr all rad statns but nly fr Arbtrn markets, whch generally are the larger markets. Secnd, newspaper retal expendture n a DMA results frm an allcatn prcess that assgns retal revenues t DMAs based n a DMA s share f ppulatn 16 years r lder. Ths methdlgy s used because there des nt appear t be a surce fr newspaper retal revenues by DMA. In addtn, the mappng f Census demgraphc data nt DMAs nvlves sme judgment because sme cuntes are cntaned n multple DMAs. Mrever, the reach f sme newspapers may extend beynd the assgned DMA, and busness establshments utsde the DMA culd have spent advertsng resurces n newspaper ads whch are assgned t the DMA. Nnetheless, acknwledgng the lmtatns f the data, the results d nt appear unreasnable r ncnsstent wth ecnmc thery. Summary and Cnclusn Ths study examnes the substtutablty f lcal newspaper, rad, and televsn advertsng n the sales actvtes f lcal busnesses. A lcal busness wthn a DMA s hyptheszed t maxmze expected sales by selectng an ptmal mx f newspaper retal ads, lcal rad ads, and lcal televsn ads. The expected sales functn fr gds and/r servces f the lcal busness s a scalar multple f the Stne- Geary utlty functn, and the resultng derved demand fr lcal meda s the Lnear Expendture System. Leser s transfrmatn f the LES permts the drect and lnear estmatn f elastctes f substtutn. Snce the LES gves rse t a sngular cvarance matrx, the ecnmetrc technque f Dhrymes (1984) and (1994) s used t estmatng ths sngular system f equatns. A randm sample f 45 DMAs s used n the study. Lcal rad and lcal televsn data are taken frm the BIA Master Access Database. Newspaper retal revenues fr DMAs are cnstructed frm data publshed by the Newspaper Asscatn f Amerca. 11 Fr the Lnear Expendture System all gds shuld a prr be grss cmplements. The data supprt the LES specfcatn. 13

14 Estmates f elastctes f substtutn, rdnary wn- and crss-prce elastctes are derved fr a representatve lcal busness establshment. The estmated elastctes f substtutn and the estmated rdnary crss-prce elastctes suggest weak substtutablty between lcal meda. The elastctes f substtutn are relatvely small, and the elastcty f substtutn between rad and televsn s nt statstcally dfferent frm zer. The rdnary crss-prce elastctes fr newspaper retal ads and lcal rad ads are small but pstve. The rdnary crss-prce elastctes fr newspaper retal ads and lcal televsn ads are negatve. In addtn, the rdnary crss-prce elastctes fr lcal rad ads and lcal televsn ads are negatve. Ths suggests that lcal newspaper and televsn ads are cmplementary nputs n the sales effrts f lcal busnesses. These results als suggest that lcal rad and televsn ads are als cmplementary nputs. The fllwng caveat must be acknwledged when cnsderng ths study n cmmuncatns plcy. There are lmtatns nherent n the underlyng data. Fr example, lcal rad ad expendtures are nt ttal expendtures n rad wthn a DMA because ttal lcal rad revenue s nt reprted. In addtn, lcal newspaper ad expendtures are cnstructed thrugh an allcatn prcess that ntrduces sme degree f measurement errr. The allcatn prcess used n ths paper assgns retal newspaper advertsng expendtures n each DMA based n a DMA s share f ppulatn 16 years r lder. The estmated elastctes are nt, hwever, ncnsstent wth ecnmc thery and d nt appear unreasnable. 14

15 References BIA s Master Access Database, 2001 Dhrymes, Phebus J. Autregressve Errrs n Sngular Systems f Equatns. Dscussn paper n. 257, Department f Ecnmcs, Clumba Unversty, New Yrk Dhrymes, Phebus J. Autregressve Errrs n Sngular Systems f Equatns. Ecnmetrc Thery 10 (1994): Ekelund, Rbert B. Jr., Gerge Frd, and Jhn D. Jacksn. Is Rad Advertsng a Dstnct Lcal Market? An emprcal analyss. Revew f Industral Organzatn 14 (1999): Ekelund, Rbert B. Jr., Gerge Frd, and Jhn D. Jacksn. Are Lcal TV Markets Separate Markets? Internatnal Jurnal f the Ecnmcs f Busness 7 (2000): Newspaper Asscatn f Amerca. See webste Pwell, Alan A. Emprcal Analytcs f Demand Systems. Massachusetts: Lexngtn Bks, Seldn, Barry J., R. Tdd Jewell, Danel M. Obren. Meda Substtutn and Ecnmes f Scale n Advertsng. Internatnal Jurnal f Industral Organzatn 18 (2000): Slk, Alvn, Lsa Klen, and Ernst R. Berndt. Intermeda Substtutablty and Market Demand by Natnal Advertsers. Wrkng paper Natnal Bureau f Ecnmc Research, December Unted States Census Bureau. Cunty Busness Patterns, Unted States Census Bureau. Census Veblen,Thrsten. The Vested Interests and the State f Industral Arts. New Yrk, B.W. Huebsch,

16 Chart A Advertsng n the Generatn f Lcal Busness Sales Table 1 Margnal Elastcty Elastcty Expendture f f Dummy Dummy Share Substtutn Substtutn TOP DMA R-SQ Lcal Rad Televsn 10 DMAs Newspaper : Retal Ad ( ) (0.0984) (0.0644) ( ) ( ) Rad Advertsng ( ) (.3087) ( ) ( ) Televsn Advertsng ( ) ( ) ( ) Table 2 Lcal Advertsng: Ordnary Own- and Crss-Prce Elastctes Newspaper Rad Televsn Newspaper Rad Televsn *Standard errrs n parentheses 16

17 Appendx B: Randm sample f DMAs DMA DMA OBS MARKET OBS MARKET 1 Batn Ruge, LA 26 Merdan, MS 2 Beaumnt-Prt Arthur, TX 27 Mam - Ft. Lauderdale, FL 3 Bllngs, MT 28 Nashvlle, TN 4 Bse, ID 29 New Yrk, NY 5 Bstn, MA 30 Oklahma Cty, OK 6 Burlngtn, VT-Plattsburgh, NY 31 Omaha, NE 7 Casper-Rvertn, WY 32 Phenx, AZ 8 Chattanga, TN 33 Pttsburgh, PA 9 Des Mnes-Ames, IA 34 Prtland-Auburn, ME 10 Detrt, MI 35 Rapd Cty, SD 11 Duluth, MN-Superr, WI 36 Ren, NV 12 El Pas, TX 37 Rchester, NY 13 Ft. Myers-Naples, FL 38 Salt Lake Cty, UT 14 Harlngen-Weslac-McAllen-Brwnsvlle, TX 39 San Deg, CA 15 Hustn, TX 40 Sprngfeld-Hlyke, MA 16 Indanapls, IN 41 Syracuse, NY 17 Kansas Cty, KS-MO 42 Terre Haute, IN 18 Lafayette, IN 43 West Palm Beach-Ft. Perce, FL 19 Lansng, MI 44 Wheelng, WV- Steubenvlle, OH 20 Las Vegas, NV 45 Wchta - Hutchnsn, KS 21 Lexngtn, KY 22 Lttle Rck-Pne Bluff, AR 23 Lusvlle, KY 24 Madsn, WI 25 Medfrd-Klamath Falls, OR 17