Entry by vertical integration to defeatmonopolization has played an important role in severalantitrust cases. Yet the source of financing for suchentry is unclear, given that the entrant represents apublic good to the vertically related firms. Whilethere are a number of theoretical and experimentalstudies on the private supply of a public good, thereis little empirical estimation on this topic. Thispaper examis business contributions to the creation ofBroadcast Music, Inc. (BMI) in 1940. BMI was createdby broadcasters specifically to fight monopolization,and represented investment in a pure public good. This study finds that several factors led tocontributions to create BMI. In particular, networkaffiliation increased the probability that a stationwould join BMI. There is also evidence stations inless competitive markets were more likely to join,indicating that the rents from the creation of BMIwere less likely to be competed away in suchmarkets.
Review of Industrial Organization – Springer Journals
Published: Oct 3, 2004
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