Creating a public good to fight monopolization: The formation of BroadcastMusic, Inc.

Entry by vertical integration to defeat monopolization has played an import ant role in several antitrust cases. Yet the source of financing for such e ntry is unclear, given that the entrant represents a public good to the ver tically related firms. While there are a number of theoretical and experime ntal studies on the private supply of a public good, there is little empiri cal estimation on this topic. This paper examis business contributions to t he creation of Broadcast Music, Inc. (BMI) in 1940. BMI was created by broa dcasters specifically to fight monopolization, and represented investment i n a pure public good. This study finds that several factors led to contribu tions to create BMI. In particular, network affiliation increased the proba bility that a station would join BMI. There is also evidence stations in le ss 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 marke ts.