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cultural producers. This leads to the danger of median voter outcomes, where middle of the road culture
is reinforced. For example, Urratiaguer (2002), building on Throsby (1990) and Abbé-Decarroux (1994),
finds that quality as judged by experts or drama critics or indicated by the artistic reputation of manager-
directors are poor explanatory variables of the demand for subsidised theatre in France (and finds a
positive price elasticity). In effect, there is a negative effect of artistic quality on attendances. The main
factor explaining demand seems to be the reputation of the theatre company. This empirical work for
France suggests that middle-of-the-road programming and bigger audiences may follow after a shift from
supply grants to demand incentives.
5.3 Programming diversity and funding of TV
To formally analyse the effects of financing modes on programming diversity and welfare, a framework
of monopolistic competition is used. Most of this research has concerned TV. The pioneering
contribution of Spence and Owen (1977) shows that any private system of finance biases against
programmes with a low own-price elasticity of demand (‘minority taste programmes’) and that are
expensive to produce. The price fails to fully reflect the average intensity of preferences for certain
programmes and, given, fixed costs, such programmes are not produced. This bias occurs with pay-TV,
but is worse if programmes are financed by advertising revenues. The latter produces fewer programmes
and leads to a less diverse menu of programmes than pay-TV. As the cross-elasticity of substitution
among programmes increases, advertising is more likely to approach a second-best structure than pay-
TV. Many countries of Europe have cable-TV. It is important to permit advertising on pay-TV, make
sure the cable operator allows entry of other suppliers of programmes, and ensure open entry with elastic
supply of channels. Doyle (1998) extends the analysis and considers various regulatory instruments (e.g.,
direct instructions and a tax on profits) that can be used. Chae and Flores (1998) argue that certain
characteristics of TV programmes, e.g., the degree of extensiveness of the market, makes them more
likely to be broadcast than shown on pay-TV. Bourreau (2003) analyses the trade-off between mimicking
and counter-programming. He shows that profile differentiation is higher under pay-TV than under
advertising support where competition on price is infeasible. He also shows that programme quality is
higher under advertiser support than under pay-TV. These studies ask the right questions and they also
apply to other areas of culture. Of course, in contrast to the US, Europe finances a lot of public
broadcasting. These studies justify governments doing this if they make possible the production and
broadcasting of more expensive TV-programmes that cater for special niche audiences. That is something
the market can only deliver in the form of narrowcasting. To ensure the diversity of programmes of
public broadcasts, Germany relies on representative viewers’ committees, the UK on detailed programme
requirements, and the Netherlands on diverse broadcasting corporations corresponding to liberal,