Some Aspects of the Market for Broadcast Traffic Information

Problem

The market for broadcast traffic information has many unique characteristics, including the role of timeliness and the tendency towards monopoly. In this report, the supply and demand curves of this market are modeled and investigated

Findings

For most of the traffic information broadcast in the United States, three primary parties are involved: the information provider, the broadcast station, and a sponsor. Usually the station allots airtime to the provider (sometimes the provider pays for it); then the provider uses most of this airtime for traffic information, reselling some of it to a sponsor. This represents the primary source of revenue for the provider.

There are high fixed costs to the provider, with economies of scale with a higher output (in other words, once the initial labor and equipment costs are taken care of, it doesn't take much more to increase the number of reports). This invites monopoly, since a larger firm would have a lower average cost per report. This is a problem since without competition, there is less incentive to provide high quality information.

The broadcaster must take several things into account: traffic reports increase the number of listeners, but you can't broadcast too many reports before listeners turn away and/or you must replace other revenue-generating airtime. In the cases where traffic information providers pay for airtime, this complicates the decision-making process for the broadcast station. Better information (more reports) means higher costs for the provider, which lowers the profit margin and means less pay to the broadcast station, where that is an issue. The station must find a middle ground between the amount of money it makes on the airtime and the quality of the information.