Review of Industrial Organization 19: 243–256, 2001.
© 2001 Kluwer Academic Publishers. Printed in the Netherlands.
Creating a Public Good to Fight Monopolization:
The Formation of Broadcast Music, Inc.
ANDREW N. KLEIT
Department of Energy, Environmental, and Mineral Economics, The Pennsylvania State University,
201 Walker Building, University Park, PA 16802-5010, U.S.A.
Abstract. Entry by vertical integration to defeat monopolization has played an important role in
several antitrust cases. Yet the source of ﬁnancing for such entry is unclear, given that the entrant
represents a public good to the vertically related ﬁrms. While there are a number of theoretical and
experimental studies on the private supply of a public good, there is little empirical estimation on
this topic. This paper examis business contributions to the creation of Broadcast Music, Inc. (BMI)
in 1940. BMI was created by broadcasters speciﬁcally to ﬁght monopolization, and represented
investment in a pure public good. This study ﬁnds that several factors led to contributions to create
BMI. In particular, network afﬁliation increased the probability that a station would join BMI. There
is also evidence stations in less competitive markets were more likely to join, indicating that the rents
from the creation of BMI were less likely to be competed away in such markets.
Key words: Entry, monopolization, performance rights organizations, public goods.
JEL Classiﬁcations: H41, L12, L40.
The private provision of a public good arises in a number of contexts. In particular,
the private provision of a public good has become an important issue in the antitrust
area, where vertically related ﬁrms may ﬁnance entry, a public good, in order to
ﬁght monopolization (see Scheffman and Spiller, 1992; Kleit and Coate, 1993; and
Innes and Sexton, 1994). Indeed, the possibility of entry by vertical integration has
played an important role in several recent important antitrust cases. While there
are a number of theoretical and experimental studies on the private supply of a
public good, there is little empirical estimation on this topic, the exceptions being
Kingma (1989) and Smith et al. (1995). There is no previous literature that reviews
contributions by businesses towards a public good.
This paper empirically examines the question of business contributions to a
public good. The example used here is the creation of Broadcast Music, Inc. (BMI)
Financial support from the Program on Telecommunications Policy, Institute of Governmental
Affairs, University of California at Davis is gratefully acknowledged. I would also like to thank Jim
Meehan for helpful comments, and Scott Guillory and Eric Walden for excellent research assistance.