The Costs of Product Repositioning: The Case of Format Switching in the Commercial Radio Industry

This paper applies recently-developed methods for estimating dynamic games to estimate the costs incurred when radio stations change format (i.e., their positioning in a horizontallydifferentiated products industry). The size of format switching costs have potentially important implications for merger and regulatory policy in this industry. Preliminary estimates indicate that sunk format switching costs are quite heterogeneous, increase with station audiences and market size, and are smaller for stations which have recently switched formats. ∗I would like to thank Jerry Hausman, Igal Hendel, Aviv Nevo and participants at the University of Chicago/Northwestern Industrial Organization and Marketing Conference, the Canadian Summer Industrial Organization Conference at Kelowna and the Duke Applied Micro lunch for very useful comments. I would like to thank the Center for the Study of Industrial Organization at Northwestern for financial support. All errors are my own.