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Economies of Scale in Media Markets

Marc Bourreau


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Since Samuelson (1958) , the economic literature has considered that production in the media industries (films, TV programs, music, etc.) is characterized by high fixed costs and economies of scale. For instance, the costs of creating a TV program are high, but the incremental cost of physical distribution to an additional consumer is very low or even nil. Broadcast television should therefore exhibit large economies of scale. We say that a firm enjoys economies of scale when a proportionate increase in every input by a given percentage yields an increase in output by a higher percentage. A looser (and weaker) definition states that there are economies of scale when a firm's average cost of producing output decreases as the output increases (the former definition implies the latter, but not the reverse). Finally, the degree of scale economies at given level of output is defined as the ratio of average cost to marginal cost (which also represents the elasticity of output with respect to the cost of production). With this last definition, there are increasing returns to scale if the degree of scale economies is strictly greater than 1. Media industries are characterized by large fixed costs and small marginal costs (→  Cost and Revenue Structures in the Media ; Public Goods ); therefore, the degree of scale economies is much greater than 1. A fixed cost is a cost that does not vary ... log in or subscribe to read full text

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