Empirical analysis of Vertical Separation and Network Sharing in the broadcasting industry

Japan's broadcasting industry is facing a major turning point: the switch to digital terrestrial broadcasting. The broadcasting industry is not assuming a cautious stance in terms of bearing the massive capital investment for the switch to digital. The structure of the broadcasting industry has been observed in relation to this investment, which will be an extremely large burden upon regional broadcasting stations in particular, and to propose better directions for the industry to take as research objectives. Japan's broadcasting stations are characterized by their dual functions of Program Production and Transmission, i.e., vertical integration. The current research conducted vertical separation of these two integrated functions and proposed that individuals responsible for program production and transmission providers become other economic actors. Whether or not an Vertical Economies exists was investigated using the translog cost function to confirm whether vertical separation will be as effective as expected. Results of the investigation evinced that no Vertical Economies exists between these two functions. Results suggested that major obstacles may not arise even if broadcasting stations' Program Production and Transmission are vertically separate. Furthermore, Network Sharing by assembling vertically separate Transmissionminded individuals and using resources in common was proposed; what level of economic results can be expected in the future due to this Network Sharing will be measured.