THE JOURNAL OF MEDIA ECONOMICS, 14(4), 213–229

Copyright © 2001, Lawrence Erlbaum Associates, Inc.

Impact of Moderate and Ruinous

Competition on Diversity: The Dutch
Television Market
Richard van der Wurff and Jan van Cuilenburg
The Amsterdam School of Communications Research ASCoR
University of Amsterdam

This article analyzes how competition in television broadcasting influences diversity

of program supply. We argue that competition in oligopolistic broadcasting markets
can take different forms, depending on the strategies adopted by broadcasters. We
distinguish between moderate and ruinous competition, and discuss under what con-
ditions these types of competition will emerge. We hypothesize that moderate compe-
tition improves diversity, whereas ruinous competition produces excessive sameness.
We test these hypotheses for the Dutch television market.

Since the 1980s European governments increasingly rely on competition to govern

media industries. Proponents of this “economic” turn in policy making argue that
competition maximizes social welfare by forcing media companies to respond to
demand as efficiently and effectively as possible. Opponents maintain that compe-
tition results in trivialization, reduced quality, and replication of content; either be-
cause of market failures or because commercialism and social-cultural aims do not
go hand-in-hand.
Taking this debate on competition and media performance as our point of de-
parture, this article examines how competition in broadcasting influences diversity
of program supply. We define diversity in the following section. Later, we argue
that competitive behavior, below a certain threshold of intensity will stimulate di-
versity, while above that threshold, it will reduce diversity. Later, we specify and

Requests for reprints should be sent to Richard van der Wurff, The Amsterdam School of Communi-
cations Research ASCoR, Kloveniersburgwal 48, 1012 CW Amsterdam, The Netherlands. E-mail:
vanderwurff@pcsw.uva.nl
214 VAN DER WURFF AND VAN CUILENBURG

test our model for the Dutch television market. Finally, we draw conclusions and
discuss policy implications.

REFLECTIVE AND OPEN DIVERSITY

Diversity refers to the extent to which media content varies on one or more content
dimensions. To establish whether media content is (sufficiently) diverse or not, we
can use two different norms. First, we can assess whether media express different
ideas or topics in the same proportion as media users prefer them. This provides a
measure of reflective diversity. Second, we can assess whether media express all
reasonable ideas or topics in equal proportions, regardless of their public support.
This offers a measure of open diversity (Van Cuilenburg & McQuail, 1982).
The former norm of reflective diversity derives its significance from the principle
that media should pay proportional attention to the needs of all media users. It resem-
bles the economic argument that supply should match demand. The latter norm of
open diversity builds upon the critical–rational principle that media content should
be thought provoking and objective. It resembles political and cultural arguments
that all ideas should have uniform access to society’s communication system.
Open and reflective diversity are incompatible and at the same time complemen-
tary notions. They are both important objectives in communications policy, yet they
can only coincide in the exceptional case that preferences for different ideas and
opinions are uniformly distributed. We therefore argue that a media system per-
forms optimally when it strikes a balance between open and reflective diversity.

MEDIA COMPETITION, INNOVATION, AND DIVERSITY

Our main question is whether competition in broadcasting can produce a balance

between reflective and open diversity. To answer this question, we build on Indus-
trial Organization (IO) theory. We study the market where broadcasters sell televi-
sion programs to viewers, and define the price of a television program as the aggre-
gated amount of money, attention, or both that viewers pay in exchange.

Oligopolistic Rivalry and Competitive Strategies

Broadcasting markerts are oligopolies (Picard, 1989). Starting with Hotelling (1929), a
number of scholars (Chae & Flores, 1998; Noam, 1991; Owen & Wildman, 1992;
Waterman, 1989) have discussed whether competition in oligopoly markets tends to
produce excessive sameness of content. The outcome of this debate is undecided. When
we assume that viewer preferences are normally rather than uniformly distributed, that
 COMPETITION AND DIVERSITY 215

viewers are not able to express the intensity of their preferences, and that preferences are
discontinuous, we indeed find that competing suppliers offer “excessive sameness”
rather than diversity. When we assume the opposite, however, we find that competing
suppliers do offer differentiated content.
This outcome is not surprising for IO theorists. Different IO models clearly show
that market conduct and performance of oligopolists can vary significantly, depending
on the assumptions, or “conjectures,” of the firms (Scherer & Ross, 1990). We there-
fore assume that “rational” broadcasters in oligopoly markets have a range of strategic
options to choose from. For our research, this implies that we need to take competitive
conduct as a relatively autonomous variable into account, next to market structure, if
we want to explain how competition influences diversity (Wirth & Bloch, 1995).
Following Porter (1985), we further assume that competing broadcasters can
adopt three different competitive strategies, namely a cost leadership strategy, a dif-
ferentiation strategy, or a price competitive strategy.1 Broadcasters adopting a cost
leadership strategy aim for a structural cost advantage (Porter, 1985). They offer
content to viewers (and audiences to advertisers) at low cost, without compromising
the quality of content. Maintaining cost advantages requires a continuous focus on
cost reduction, and investments in technological and nontechnological process in-
novations. Because broadcasting entails high first copy costs and low reproduction
costs, a primary way to acquire a structural cost advantage is by serving maximum
audiences and realizing economies of scale and scope.
Broadcasters that adopt a differentiation strategy rather aim to develop a compet-
itive advantage by offering qualitatively different content (Porter, 1985). They need
to make a structural, financial, and organizational commitment to pursue product in-
novations. Both the cost leadership and differentiation strategies intend to create a
sustainable competitive advantage that earns broadcasters above-average profits.
When broadcasters fail to accomplish this goal, they will find themselves engaged in
price competition. Then they need to minimize costs in the short term. They may
re-broadcast content that has already aired in the same or other markets. Alterna-
tively, they will broadcast content that has already been proven successful in other
markets and that can be replicated at low cost. We may refer to this strategy as the
price competitive strategy.

Oligopolistic Rivalry and Market Performance

Porter considers it essential that companies that want to develop a sustainable com-
petitive advantage make a clear choice between either the cost leadership or the dif-

1Porter adds that strategies can be applied towards the whole market or towards market segments. We

disregard this distinction. It does not add much at this stage of our argument. Besides, the dataset with
which we will test our model does not include niche players (i.e. special interest channels). We return to
this issue in the discussion.
216 VAN DER WURFF AND VAN CUILENBURG

ferentiation strategy. In addition, it is essential that they do not replicate each

other’s strategies. We argue that broadcasting markets can only provide a balance
between reflective and open diversity under similar conditions. The argument un-
derlying our model is as follows.
When one or very few companies adopt a cost leadership strategy, these compa-
nies will offer mainstream content of acceptable quality that attracts large audi-
ences. In our terminology, this means that they will offer a reflectively diverse
spectrum of programs that fits the demand of the largest possible audience. How-
ever, when too many companies adopt a cost leadership strategy, these cost leaders
will start to compete on price. They will start undercutting each other’s prices until
prices equal marginal costs.2
Given that marginal costs are very low and that fixed first copy costs are rela-
tively high in broadcasting, price competition will easily push prices below aver-
age costs. When this happens, a negative cycle starts. Revenues will not be
sufficient to recoup first copy costs. Investments in content development or pro-
cess innovation will become unfeasible. Broadcasters will start replacing cost
leadership strategies with short-term price competitive strategies to minimize first
copy costs. They will offer low quality content at low prices. Audiences will turn
to other media markets and revenues will decline further. The end result will be
that the remaining broadcasters all offer the same content. Formally, this is the
“perfect competition” scenario, with prices that equal marginal cost and products
that are homogenous. We, however, prefer the term ruinous competition (Van
Cuilenburg, 1999).
Companies can avoid a ruinous price war by adopting a differentiation strategy
(see Tirole, 1988). Broadcasters that act accordingly offer distinct content that
contributes to open diversity. Yet, prices in such a market will increase, too —both
because differentiation increases costs and because differentiation gives broad-
casters market power to increase prices. When too many companies adopt a differ-
entiation strategy, prices will increase too much and a negative cycle will occur.
Consumers will reduce demand and switch to substitutes. Revenues will decline
and companies will once more be forced to revert to price competitive strategies.
In contrast, a beneficial cycle emerges when broadcasters do not imitate each
other’s strategies. Under these conditions, price increases due to product differen-
tiation will strengthen the competitive position of cost leaders that can expand
their offerings. Likewise, growing price competition will trigger offsetting prod-
uct differentiation responses. Hence a dynamic balance between cost leadership
and differentiation strategies emerges. In such a situation of moderate competi-
tion, process innovations that are initially developed by cost leaders gradually dif-
fuse to companies with differentiation strategies, while cost leaders gradually take

2This argument is adapted from the Bertrand model of oligopolistic competition (in Tirole, 1988) and

from Baumol and Sidak’s (1994) discussion of competition in telecommunications networks.

 COMPETITION AND DIVERSITY 217

up product innovations from differentiating broadcasters. Prices therefore are not

excessively high and supply varies between open and reflective diversity.
Ultimately, companies’ strategic choices will determine whether competition
will be moderate or ruinous. Nevertheless, IO theory and Porter’s (1980) theory on
industry-wide competitive forces suggest several structural factors that make a
moderate competitive outcome less likely (see De Jong, 1993; Porter, 1980; Soete
& Ter Weel, 1999):

1. Suppliers, buyers, or both are concentrated.

2. Switching costs for viewers (or advertisers) are low.
3. Innovations cannot be appropriated (i.e. patented or kept secret).
4. There are many competitors of about equal size.
5. Firms have different backgrounds.
6. New entrants enter the market.
7. Market growth is slow or negative.

These seven factors increase competition and/or make competitive relations less
stable and less predictable. They indicate market structural conditions that favor the
emergence of ruinous rather than moderate competition.

A Media Competition, Innovation, and Diversity Model

Competitive conduct on oligopoly markets can take different forms. We distin-

guish between moderate and ruinous competition. Under moderate competition,
companies pursue either cost leadership or differentiation strategies. They either
invest primarily in process innovations and offer mainstream content of adequate
quality at lower prices, contributing to reflective diversity, or they invest primarily
in product innovation and offer distinctive content that contributes towards open
diversity at higher prices. Because of this strategic heterogeneity, a shift towards
differentiation strategies can trigger cost leadership responses, and vice versa. Con-
sequently, a dynamic balance between open and reflective diversity emerges.
On the other hand, ruinous competition emerges when most companies pursue
price competitive strategies. This situation corresponds with the classic model of
perfect competition. Innovation will be absent, prices will approach marginal
costs, and content will be homogeneous. Such a situation of ruinous competition
can emerge, inter alia, when many competitors of similar size compete or when
significant new competitors enter a market.

A CASE STUDY OF THE DUTCH TV MARKET

We present an exploratory test of our model on the basis of data on the Dutch televi-
sion market for the period 1988–1999. Competition increased significantly in the
218 VAN DER WURFF AND VAN CUILENBURG

Dutch market in this period. Until 1989, the Netherlands had an exclusively public
broadcasting system with two, and since 1988 three, public channels. Broadcasting
time on these channels was allocated to seven major independent, not-for-profit
broadcasting organizations (and a number of minor organizations) in a manner that
supposedly provided a combination of open and reflective diversity (see Van
Cuilenburg & McQuail, 1982).
The first commercial broadcaster entered this market in October 1989. Since
then, the number of broadcasters has steadily increased.3 Number two entered the
market in 1993, three more commercial channels followed in 1995, and the last
commercial channel entered the market in early 1999. At present there are three
public and six commercial general interest channels.4 In addition, there are more
than 10 new special interest channels, such as CNN, MTV, and Discovery Chan-
nel. These channels serve a population of slightly less than 16 million people.

HYPOTHESES

Our model suggests that the gradual increase in competition in the Dutch broadcast-
ing market improves diversity until the threshold between moderate and ruinous
competition is passed. To test this model, we derive nine hypotheses.
First we predict that the gradual increase in competition results neither in a
steady increase nor a steady decline of diversity. Rather we predict that there are
two different modes of competition that each delivers distinct results. Conse-
quently, we hypothesise in negative terms that

H1. Competition intensity and reflective diversity are not linearly related.
H2. Competition intensity and open diversity are not linearly related.
H3. Competition intensity and excessive sameness are not linearly related.

In positive terms, we predict the following relative levels of diversity:

H4. Reflective diversity is highest with moderate competition and lowest

with ruinous competition.
H5. Open diversity is highest with moderate competition and lowest with ru-
inous competition.

3Market entry of commercial broadcasters is strongly facilitated by the high degree of penetration

(>90%) of cable in The Netherlands.

4Three commercial channels (RTL4, RTL5, and Veronica) are owned by the Holland Media Groep,

part of CLT-Ufa. Two channels (NET5 and SBS6) are owned by SBS and De Telegraaf (a major Dutch
newspaper publisher). One channel (TV10, later Fox) is owned by Fox (Rutten & Buijs, 1999). During
the period under study, the public channels received income from advertising and license fees, and the
commercial channels from advertising.
 COMPETITION AND DIVERSITY 219

H6. Excessive sameness is lowest with moderate competition and highest

with ruinous competition.

In addition, we expect to find a dynamic balance between open and reflective diver-
sity under moderate competition, and a negative cycle under ruinous competition:

H7. With moderate competition, changes in open diversity have different

signs than changes in reflective diversity. (That is, if open diversity increases,
reflective diversity will decline, and vice-versa.)
H8. With ruinous competition, changes in open and reflective diversity have
equal signs. (Basically, both open and reflective diversity will decline.)

Finally, we take into account that new entry is one of the structural factors that in-
tensify competition. We moreover assume that the competition intensifying effect
of new entry is higher under moderate competition than under ruinous competition
(where competition is intense anyway):

H9. With moderate competition, excessive sameness increases and open

and reflective diversity decrease more rapidly in quarters immediately be-
fore, during, or after new entry than in other quarters.

DATA AND VARIABLES

To test these hypotheses we use quarterly data on broadcasting supply and viewing
patterns in the Netherlands, broken down per channel and program type, for the pe-
riod 1988 until the second quarter of 1999. We include all (nine) public and com-
mercial general interest channels that target the Netherlands.5 We exclude all other
channels that can also be received.6
We examine diversity of television program types. We use ten different pro-
gram type categories, that are generally used by European broadcasters and rating
agencies. These are (a) news, (b) current affairs, (c) “serious” information, (d)
“light” information, (e) artistic information, (f) entertainment, (g) performances
(music, comedy), (h) sports, (i) movies, and (j) TV-series.

5The data we use are collected on a regular basis by Intomart for broadcasters and advertising agen-

cies. However, Intomart did not collect data for all commercial channels from the moment they entered
the Dutch market. We therefore lack data for RTL4 from its entry in 1989 until and including the third
quarter of 1992. We also lack data for TV10/Fox, from its entry in May 1995 until and including the last
quarter of 1995.
6The nine major general interest channels included in our study together had a market share of 86% in

the second quarter of 1999. The regional channels and one Flemish public channel, not included in our
study, had an additional market share of 2% each. Of the remaining excluded special interest and foreign
(public) channels, none had a market share of more than 1%.
220 VAN DER WURFF AND VAN CUILENBURG

We draw six variables from our dataset (see Table 1), three related to competition
and three to diversity. The first variable measures overall Competition Intensity (CI)
between channels. It is basically a Herfindahl-Hirschman Index (HHI) that is
re-coded so that a higher value implies more intense competition. Following Scherer
and Ross (1990) we further decompose this variable into two components: the Num-
ber of Channels (NC) and the Variance Equivalent of Market Shares (VEMS). The
former variable (NC) represents a structural condition that can trigger ruinous com-
petition. The latter variable (VEMS) we interpret as an indicator for competitive
conduct. We assume that a low variance equivalent of market shares indicates that
corporate strategies are similar, and thus that competitive behavior is intense.
The remaining three variables measure diversity according to the definitions
provided earlier. Reflective Diversity (RD) measures how well supply matches av-
erage demand (in terms of relative viewing time per program type). Open Diver-
sity (OD) gives an estimate of how uniformly broadcasting time is spread over the
different program types. Excessive Sameness (ES) expresses what percentage of
broadcasting time is devoted to the two most popular program types (i.e. “light” in-
formation and TV-series).

PERIODIZATION

To be able to test our model, we further need to distinguish between a period in

which structural conditions favor moderate competition and another period in
which structural conditions favor ruinous competition. We derive the threshold be-
tween these two periods from IO theory.
Scherer and Ross (1990) argue that “as a very crude general rule, if evenly matched
firms supply homogeneous products in a well-defined market, they are likely to begin
ignoring their influence on price when their number exceeds ten or twelve” (p. 277).
When oligopolists start to ignore their influence on price, they start to behave as in a
perfectly competitive market. In our model this means the start of ruinous competition.
Given our discussion of structural conditions that favor ruinous competition, we
moreover assume that competitors in broadcasting markets will already start to be-
have as in a perfectly competitive market at lower numbers than 10 to 12. After all,
concentration of content suppliers and advertising agencies is high, advertisers and
viewers can easily switch from one broadcaster to another, (product) innovations
can easily be copied, different broadcasters have different (public and commercial)
backgrounds, and supply is growing rapidly whereas demand is stagnating.7 All
these factors, we argued in section 3, trigger more intense competition.

7The major Dutch general interest channels, in combination with three major thematic channels (Car-

toon Network, KinderNet, and MTV), broadcasted in 1998 on average 157 hr per day; almost six times
more than the average of 23 hr people received in 1988. Viewing time in contrast grew only by one third,
from 2 hr and 4 min in 1988 to 2 hr and 45 min in 1998. (Van Meurs, 1999).
 TABLE 1
Variables Used in Study

Range (Minimum –
Variables Indicator for Formula Maximum) Notes

CI Competition intensity in general
NC Competitiveness of market structure
VEMS Intensity of competitive conduct
OD Extent to which program types are
broadcasted uniformly
RD Extent to which program types are
broadcasted proportionally to
demand
ES Bias toward popular programs
= 1 – HHI 0 £ CI £ (n – 1)/n Where HHI = S mi2 and mi is the audience share of
= 1 – S mi2 channel i
= 1 – (1/NC + VEMS)
=n 0 < NC < ¥ Where n is the number of channels
= S si2 0 £ VEMS £ (n – 1)/n Where si is the difference between the market share
= HHI – 1/n of firm i and the market share of the average firm
in the industry
= 1 – S ç yiç /2 0 £ OD £ 1 Where yi is the difference between the actual
proportion of broadcasting time devoted to
program type i and the norm for program type i in
a situation of maximum openness (i.e., 1/10)
= 1 – S ç ziç /2 0 £ RD £ 1 Where zi is the difference between the actual
proportion of broadcasting time devoted to
program type i and the norm for program type i
given viewer demand (i.e., relative viewing time)
= vt1 + vt2 0 £ ES £ 1 Where vt1 and vt2 are the relative viewing times for
the most and the second most popular (i.e. best
viewed) program types

Note. CI = competition intensity; HHI = Herfindahl–Hirschman Index; NC = number of channels; VEMS = variance equivalent of market shares; OD = open
diversity; RD = reflective diversity; ES = excessive sameness.
221
222 VAN DER WURFF AND VAN CUILENBURG

We argue that the threshold between a market structure that favors moderate
competition and a market structure that favors ruinous competition in the Dutch
market lies at six channels. Accordingly, we divide our data set into two periods. In
Period A conditions favor moderate competition. This period runs from the first
quarter of 1988 until the third quarter of 1995. In Period B, conditions favor ruin-
ous competition. This period starts with the entry of three commercial channels in
the fourth quarter of 1995, and runs until the second quarter of 1999.

RESULTS

Figure 1 presents a graphical overview of the developments in competition and di-

versity in the television market in the Netherlands since 1988. It shows that Compe-
tition Intensity and Excessive Sameness increase gradually during the 11-year pe-
riod of analysis, while Open Diversity decreases and Reflective Diversity first
increases and then declines again.

Competition and Diversity

Figure 1 suggests and analysis confirms that Competition Intensity, Open Diver-
sity, and Excessive Sameness are strongly correlated (rCI-OD = –.855; rCI-ES = .910;

1.00
VOO
RTL4 RTL5 NET5
SBS6
TV10
0.90

0.80

0.70

0.60

0.50

0.40

0.30
8 8 8 8 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9
8 8 9 9 0 0 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9
- - - - - - - - - - - - - - - - - - - - - - -
1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 1

Competition Intensity Reflective Diversity Open Diversity Excessive Sameness

FIGURE 1 Competition, new entry, and diversity in the Dutch TV market (1988–1999).
 COMPETITION AND DIVERSITY 223

rOD-ES = –.894).8 The more intense competition, the less openly diverse and the more
excessive the same program supply. These results are not as expected. They do not
support hypotheses H2 and H3. Reflective Diversity and Competition Intensity, on
the other hand, show a low and insignificant correlation (rCI-RD = .193; p = .2). Con-
firming our expectations, there is only a very weak linear relationship between
these two variables.
When we decompose Competition Intensity into its two components, we find
that Reflective Diversity is strongly and negatively related to the Variance Equiva-
lent of Market Shares (rVEMS-RD = –.662). Excessive Sameness and Open Diversity
on the other hand are strongly related to the Number of Channels (rNC-ES = .889 and
rNC-OD = –.916 respectively). These results suggest that reflective diversity de-
pends in particular on the competitive behavior of broadcasters, whereas open di-
versity and excessive sameness depend more on the structural dimension of
competition.

Moderate Versus Ruinous Competition

Next we study the relative levels of diversity in the two periods. The results concur
with our hypotheses H4–H6. Reflective Diversity is highest when conditions favor
moderate competition (i.e. in period A), although the differences between the two
periods are small (RDA = .87 and RDB = .85). Open Diversity in contrast is clearly
highest when conditions favor moderate competition (ODA = .69; ODB = .62). Ex-
cessive Sameness likewise is clearly highest when conditions favor ruinous compe-
tition (ESA = .46; ESB = .54). The latter two findings support the model.
Part of the explanation why Reflective Diversity does not vary much between
period A and B, is that Reflective Diversity is especially low in the first part of pe-
riod A, when only public broadcasters compete (RDA1 = .85). Reflective Diversity
subsequently becomes highest in the second part of period A, from 1993 forward,
when public and commercial broadcasters compete (RDA2 = .89). These changes
in Reflective Diversity suggest that public broadcasters without commercial com-
petition do not pay as much attention to the demands of the general public as they
do when they do compete with commercial broadcasters.
Turning to the period-specific relationships between competition and diversity,
we note that Reflective Diversity and Competition Intensity are positively related
when conditions favor moderate competition (rCI-RD, A = .681). When conditions
favor ruinous competition, Reflective Diversity and Competition Intensity are not
significantly not negatively related (rCI-RD, B = -.371; p = .161). When we compare
these figures with the correlation for the whole period (rCI-RD, A+B = .193; p = .2),

8All
correlations are significant at p < .01, unless indicated otherwise. The number of cases is 46. A
complete overview of the results of our correlation analysis can be found in Table 2.
224

TABLE 2
Correlations

Period A: Moderate
Total Period Competition Period B: Ruinous Competition

Variables RD OD ES RD OD ES RD OD ES

CI
Pearson correlation .193 –.855** .910** .681** –.636** .817** –.381 –.316 .254
Significance levels (two tailed) .200 .000 .000 .000 .000 .000 .161 .252 .362
NC
Pearson correlation –.092 –.916** .889** .539** –.713** .765** –.514* –.491 .331
Significance levels (two tailed) .542 .000 .000 .002 .000 .000 .050 .063 .228
VEMS
Pearson correlation –.662** –.226 –.048 –.714** –.038 –.442* .211 .145 –.145
Significance levels (two tailed) .000 .132 .751 .000 .841 .013 .451 .607 .605
RD
Pearson correlation .193 .024 –.148 .480** .814** –.537*
Significance levels (two tailed) .199 .876 .426 .006 .000 .039
OD
Pearson correlation –.894** –.686** –.838**
Significance levels (two tailed) .000 .000 .000

Note. N = 46 in total period; n = 31 in Period A; n = 15 in Period B. CI = competition intensity; NC = number of channels; VEMS = variance
equivalent of market shares; RD = reflective diversity; OD = open diversity.
*p = .05. **p = .01.
 COMPETITION AND DIVERSITY 225

we can draw the conclusion that reflective diversity and competition are differ-
ently related under different modes of competition.
A disaggregation of Competition Intensity into its components offers additional
support for this conclusion. When competitive behavior becomes more intense (as
signaled by a decline in the variable Variance Equivalent of Market Shares) under
conditions that favor moderate competition (i.e. in period A), supply becomes
more reflectively diverse (rVEMS-RD, A = –.714) and more excessively the same
(rVEMS-ES, A = –.442; p < .05). When competitive behavior becomes more intense
under conditions that favor ruinous competition, in contrast no significant effects
on diversity are observed. These results suggest that under conditions that favor
moderate competition diversity is strongly related to competitive conduct. The less
intense competitive conduct is, the more broadcasters’ strategy will vary and the
more “open” diversity will be, and vice versa. However, once the threshold of ru-
inous competition is passed, changes in competitive behavior do not have a signifi-
cant effect on market performance any more. The structural conditions have
become dominant, and conduct can but only result into excessive sameness.

Changes in Diversity and New Entry

We noted that Excessive Sameness and Open Diversity are very strongly and very
negatively related. This is quite logical, given that these variables measure opposite
phenomena. Of more significance is the finding that Reflective and Open Diversity
are strongly and positive related when conditions favor ruinous competition (rOD-RD,
B = .814). This result confirms hypothesis H8. When conditions favor moderate
competition, Reflective and Open Diversity are not related. This is not as we pre-
dicted in hypothesis H7. Still, we do believe that we can interpret the differences in
these two periods as additional support for our model.
A more detailed and comparative analysis of the direction of changes in diver-
sity in the two periods delivers exactly the same results.9 In period B, when condi-
tions favor ruinous competition, changes in Reflective and Open Diversity are
primarily negative. Open and Reflective diversity also change 14 out of 15 times in
the same direction. On the other hand, in period A, when conditions favor moder-
ate competition, positive and negative changes in Reflective and Open Diversity
are more in balance, and Reflective and Open Diversity change 13 out of 27 times
in opposite directions.
Finally, we consider the impact of new entry on diversity. When comparing an-
nual changes in diversity, we observe that the most rapid changes took place under
conditions of moderate competition and in annual periods in which new players

9We calculated changes in diversity not from quarter to quarter but between the same quarters in dif-
ferent years. That way we excluded seasonal influences that otherwise could bias our results.
226 VAN DER WURFF AND VAN CUILENBURG

entered the market (see Table 3). This finding supports our prediction in hypothe-
sis H9, that new entry intensifies competition and negatively affects diversity un-
der conditions favoring moderate competition.

CONCLUSIONS AND DISCUSSION

A proper empirical test of our model would require analysis of different media mar-
kets in more countries. Yet, given the exploratory character of our study and the
many practical problems involved in acquiring the necessary data, we restricted
ourselves to a case study and a two-dimensional assessment of correlations for a
relatively long period in Dutch broadcasting. We believe that this study illustrates
the usefulness and supports the overall argument of our model.
To begin, our results clearly confirm the first hypothesis (H1), that competition
and reflective diversity are not linearly related. And although more research is
needed before robust thresholds between moderate and ruinous competition can be
defined, our analysis of the phases with conditions that favor either moderate or ru-
inous competition, supports or confirms most of our other hypotheses as well. The
results show that reflective diversity is (somewhat) higher when conditions favor
moderate competition than when they favor ruinous competition (H4), that open
diversity is highest when conditions favor moderate competition (H5), and that ex-
cessive sameness is highest when conditions favor ruinous competition (H6).
Moreover, our data indeed show that, at least to a certain extent, a balance exists
between open and reflective diversity under conditions that favor moderate com-

TABLE 3
Average Changes in Diversity in Four-Quarter Periods, With or Without New Entry

Period 89-III/90-II 90-III/91-II 91-III/92-II 92-III/93-II 93-III/94-II

Changes in RD 0.0036 0.0167 0.0284 0.0316 –0.0250

Changes in OD 0.0114 –0.0081 0.0215 –0.0289 –0.0152
Changes in ES 0.0226 0.0271 –0.0213 0.0161 0.0438
94-III/95-II 95-III/96-II 96-III/97-II 97-III/98-II 98-III/99-II

Changes in RD –0.0064 –0.0196 0.0028 –0.0090 –0.0144

Changes in OD –0.0124 –0.0312 –0.0116 0.0069 –0.0200
Changes in ES –0.0061 0.0266 0.0237 –0.0155 0.0178

Note. Periods with new entry are indicated in italics. Periods with largest changes in diversity are
indicated in bold. Figures are calculated by estimating the change in diversity for one quarter in
comparison with the same quarter 1 year before (to rule out seasonal biases), and then by averaging the
changes for four-quarter periods. Because most new entry occurred in Quarter IV, we compare annual
periods that start in Quarter III and end in Quarter II the ensuing year. RD = reflective diversity; OD =
open diversity; ES = excessive sameness.
 COMPETITION AND DIVERSITY 227

petition (H7), whereas under conditions that favor ruinous competition open and
reflective diversity clearly decline together (H8). Finally, the data indicates that
new entry under conditions that favor moderate competition has a relatively strong
negative impact on diversity (H9). These findings all support our model. Only the
hypotheses that Open Diversity and Excessive Sameness are not linearly related
with Competition Intensity (H2 and H3) had to be rejected. In sum, we conclude
that indeed two different modes of competition exist, namely moderate and ruin-
ous competition, that each affect diversity differently.
For the future, more thorough test of our argument with data on more than just
one national broadcasting market, we propose to derive from our analysis a
multivariate model. This model encompasses two independent variables (X1:
Variance Equivalent of Market Shares; X2: Number of Channels; both variables
resulting from decomposition of our original variable Competition Intensity), one
dichotomous interaction variable (Z: Mode of Competition), and three dependent
variables (Y1: Reflective Diversity; Y2: Open Diversity; Y3: Excessive Sameness).
We predict the following relations between these variables:

Y1 = a 1 –b 11 (1 – Z)X1 – b 21 ZX2 (1)

Y2 = a 2 +b 12 (1 – Z)X1 – b 22 ZX2 (2)

Y3 = a 3 –b 13 (1 – Z)X1 + b 23 ZX2 (3)

That is, under conditions that favor moderate competition (Z = 0), less intense com-
petitive conduct (i.e. higher variance in market shares, X1) produces more open di-
versity (Y2) whereas more intense competitive conduct produces more reflective di-
versity (Y1) and more excessive sameness (Y3). The number of channels (X2) will
have no significant effect on diversity. In contrast, under conditions that favor ruin-
ous competition (Z = 1), the number of channels (X2) is positively related with exces-
sive sameness (Y3), and negatively with open and reflective diversity (Y2 and Y1).
Competitive conduct (X1) will have no significant influence on competition. These
predictions concur with the results of our case study. They further specify how com-
petition, in its structural and conduct dimensions, influences diversity differently
under different conditions. They moreover encompass our basic assumption that
Open and Reflective Diversity are inversely related under moderate competition
while they are proportionally related under ruinous competition. Further sophistica-
tion can be added by slightly varying Z, to simulate that structural conditions and
conduct have minor effects under moderate and ruinous competition respectively.
A different but equally important issue that likewise deserves more attention in
future research is the role of special interest channels, which we excluded from our
analysis. Following Porter (1985) we can characterize providers of special interest
228 VAN DER WURFF AND VAN CUILENBURG

channels as broadcasters that adopt a focus strategy. Like the general broadcasters
we discussed, these niche players can adopt a cost leadership, a differentiation or a
price competitive strategy. We assume that broadcasters with a focus cost leader-
ship strategy strengthen reflective diversity by catering for particular demands of
large or small audiences, whereas broadcasters that adopt a focus differentiation
strategy contribute to open diversity by offering particularly distinct content.
Broadcasters with a focus price competitive strategy, in contrast, almost by defini-
tion offer one-sided and cheap content (i.e. excessive sameness). Inclusion of these
niche players in the analysis might show that supply is more diverse under moder-
ate competition than we have found so far.
Third, more research is needed on viewer preferences. We used measurements
of viewing time as approximations of consumer demand in our study. This is less
than ideal, given that viewing time is not independent from broadcasting supply.
Yet, independent estimates of viewer preferences are not readily available.

POLICY IMPLICATIONS

Anticipating further support for our model on media competition, innovation, and
diversity, we believe that the conclusions have at least three implications for media
and competition policy. First, we conclude that media competition policy should
explicitly aim for moderate competition rather than competition as such, because
moderate competition is the best guarantee for optimal diversity, reasonable prices,
and adequate innovation.
Second, we conclude that moderate competition in broadcasting markets can be
stimulated by shaping the appropriate structural conditions. Given the problems
inherent in market conduct regulation, this is a comforting outcome. Moreover, we
note that such structural media competition policies are both in the interest of di-
versity and of broadcasters. They therefore should command sufficient political
support, and can partly rely on self-regulation.
Third, we believe that market entry regulation should be part of structural me-
dia competition policy. We do not want to go as far as arguing that policy makers
should restrict the number of channels in the Dutch market to six channels (or to
any other number). Yet, we do believe that market entry regulation is an appropri-
ate instrument to create favorable conditions for moderate competition—as long
as not only the number of players but also their backgrounds and strategic aims,
and other structural conditions are considered.
In sum, we recommend that media competition policy makers and regulators
seriously consider the implications of their decisions for moderate and ruinous
competition. These implications need to be assessed on a case-by-case basis. If we
derive one lesson from our study, it is that no simple, linear relationship between
competition and diversity can be assumed to exist.
 COMPETITION AND DIVERSITY 229

ACKNOWLEDGMENTS

We gratefully acknowledge the support of Lex van Meurs of Intomart, who pro-
vided us with data on the Dutch television market. We thank Intomart’s clients, and
in particular Marjan Hammersma of the NOS, for giving us permission to use these
data. We thank three anonymous reviewers for their useful comments. Of course,
none of these organizations or persons can be held responsible for any errors, omis-
sions, or conclusions that we have presented.

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