Search

The U.S. Justice Department filed suit against the National Association of Broadcasters in 1979, charging that its Television Code restricted the supply of advertising. Had the case, which was settled by consent decree in 1982, gone to trial under a "rule of reason," the cartel effects of the code would have been examined. This paper employs a number of statistical techniques to see if the code provided cartel benefits. The results suggest that the decision to become a code member cannot be ascribed to cartel effects of the code.

Commonly in antitrust cases against trade associations, the courts have made decisions based on a rule of reason, evaluating the harm caused by the association rather than proscribing per se a given activity. Had Judge Greene evaluated the harm caused by the NAB Television Code, only one decision was possible: the code was not evil. Although restricting the number of commercials does (indirectly) increase price of commercials, the code was widely ignored. Nor could it be expected to succeed in the large and diverse number of broadcast markets. In any case, the broadcast market was changing significantly during and since the case in a way that makes code enforcement even more problematic. The introduction of low-power "drop-in" stations and subscription stations combined with the tremendous increase in cable television penetration combine to severely limit the ability of ordinary broadcast stations to protect their positions. Statistical evidence confirms these market characteristics. The code has no positive effect on station profit. Finally, an effective code likely benefits consumers by reducing the number of commercials and by encouraging stations to compete by raising program quality.