Abstract
Previous studies of discrimination have explored the role that customer prejudice may play in lowering the marginal revenue product of minority employees and, hence, lowering their equilibrium wages. I observe that variation in these types of customer preferences creates an incentive for firms to respond strategically by engaging in product differentiation via the characteristics of their employees. Analysis of data collected for local television news stations supports the predictions of this model of "competitive discrimination." There is a negative correlation between the racial, gender, and age compositions of competing news stations. Moreover, Nielsen ratings for station broadcasts indicate that viewers of stations with more black employees are less discriminatory than viewers of stations with fewer blacks. A similar result is found when examining the age and gender composition of employees.
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