Waldfogel.

Theory predicts that in markets with increasing returns the number of differentiated products -- and resulting consumer satisfaction -- grow with market size. Waldfogel documents this phenomenon for 246 U.S. radio markets. By a mechanism that he terms "preference externalities," an increase in the size of the market brings additional products that are valued by others with similar tastes. Waldfogel examines preference externalities between black and white and between Hispanic and non-Hispanic radio listeners, as well as among listeners of different age groups. His findings are striking. Within groups, preference externalities are large and positive, but across groups they are small and possibly negative. For example, entry of black-targeted stations and black listening share will increase with the black population, but they are unaffected (or possibly reduced) by the size of the white population. Consequently, small groups receive less variety from the market. Forces that increase the size of the market, suc h as emerging satellite and Internet technologies, thus may increase the satisfaction of individuals whose preferences do not match those of their fellow local residents.