Product Repositioning in Di¤erentiated Product Industries: The Case of Format Switching in the Commercial Radio Industry

This paper estimates a dynamic model of product repositioning in di¤erentiated product markets using data from the broadcast radio industry. The feasibility of repositioning can play an important role in determining the medium and long-run e¤ects of demand shocks, mergers and many kinds of policy intervention. The paper extends techniques for estimating dynamic oligopoly models to a setting with rich product di¤erentiation and uses timing assumptions to consistently estimate demand allowing for the endogeneity of product characteristics. Repositioning (format switching) costs are found to be relatively small (less than one year’s revenues for the average station) so that product selections change quite quickly in response to demand shocks. They increase with market size, consistent with stations spending resources to …nd new listeners and advertisers. Send any comments to [email protected]. I would like to thank Jerry Hausman, Igal Hendel, Aviv Nevo, Amil Petrin, Ariel Pakes, Rob Porter, Steve Berry, Kate Ho, Allan Collard-Wexler, Paul Ellickson, Arie Beresteanu and participants at seminars at Duke, Northwestern, Chicago, Harvard/MIT, Columbia, Yale, the Canadian Summer Industrial Organization Conference at Kelowna and the Cowles Conference on Policy Applications of Structural Models for advice and useful comments. I would like to thank the National Association of Broadcasters and the Center for the Study of Industrial Organization at Northwestern University for …nancial support. All errors are my own.