A Study in Print: Competition in Prices and Quality Between Newspapers and Magazines

NHH master thesis.

Awarded 2020 BECCLE master theses grant.

Published as SNF working paper 10/20.

Abstract

‘Media markets differ significantly from the regular product space in that media outlet differentiation is not immediately separable in n-dimensions. It is also the case that high effort costs of reading an article may put readers off from reading it, and instead read about a different topic where they do not have to concentrate as much on following along. In this thesis I present a ‘short-run’ model for media competition where the editor publish a news issue in three stages: first they invest in quality through the underlying journalistic effort behind a story, then they decide on the advertisement volume by producing the newspaper’s layout, and lastly they compete in prices on news stands. I allow two long run variables to vary between the outlets: the size of their advertisement markets, and the effort cost of compromise – the transport cost. It is this latter difference between the outlets which is of interest in this study. By using Launhardt (1885)’s model of spatial differentiation rather than Hotelling (1929)’s, I allow one of the outlets to have disjoint demand, they have demand on both sides of their competitor. This allows me to analyse competition in prices and quality between long-form newspapers, which often require more attention to read, and tabloids, which are often easier to read. I find that outlets which cover similar news stories will wish to differentiate vertically, but that this might also occur with larger distance between the covered stories. The harder-to-read outlet will likely choose to invest more in journalistic quality of their stories to improve their perceived shelf-price. Allowing for varying transport cost complicates the matter of product differentiation, but in the media space, given the subjectivity of people’s preferences, and the importance of quality authorship in information-sharing, it adds relevant insights on the qualitative decision making among media outlets.’