I was having an argument with a friend of mine recently over the economics of the radio market. It’s kind of an interesting argument, that there are three parts to this structure.

First, there is the “public goods” side of radio. As far as radio stations try to reach out to listeners, they are essentially offering a public good. That is, the good is nonrival, nonexcludable, and indivisible.

Second, there is the “private goods” side of radio. In order to pay for the public good, advertisers purchase airtime, which is rival, excludable, and divisible.

Third, there is the market for listeners, a mixed public-private goods market. Essentially, this part of the radio market determines the value of the private good, and that is what the advertisers are ultimately paying for. This gives a whole new meaning to the term “Consumer Goods.”

Anyway, somehow the argument doesn’t hold water in my mind. It makes sense maybe from a marketing perspective, but I’m not sure that it makes sense from an economics perspective. Can anyone else (Ahem, Robert?) make sense of this argument?