Collusion and the Political Differentiation of Newspapers
Barcelona Graduate School of Economics (Barcelona GSE)
Tilburg University, TILEC; University of Florence, Dipartimento di Scienze Economiche
October 1, 2011
NET Institute Working Paper No. 11-26
We analyse a newspaper market where two editors compete for advertising as well as for readership. They first choose the political position of their newspaper, then set cover prices and advertising tariffs. We build on the work of Gabszewicz, Laussel and Sonnac (2001, 2002), whose model we take as the stage game of an infinitely repeated game, and investigate the incentives to collude and the properties of the collusive agreements in terms of welfare and pluralism. We analyse and compare two forms of collusion: in the first, publishers cooperatively select both prices and political position; in the second, publishers cooperatively select prices only. Whereas the first leads to intermediate product differentiation, the second leads, as in Gabszewicz, Laussel and Sonnac (2001, 2002), to minimal product differentiation. However, in the latter case, differently from Gabszewicz, Laussel and Sonnac (2001, 2002), cover prices are positive and the minimal differentiation outcome does not depend on the size of the advertising market. We thus show that collusion on prices reinforces the tendency towards a Pensée Unique discussed in Gabszewicz, Laussel and Sonnac (2001).
Number of Pages in PDF File: 59
Keywords: collusion, newspapers, two-sided markets, indirect network effects, pluralism, spatial competition
JEL Classification: L41, L82, D43, K21
Date posted: November 24, 2011 ; Last revised: November 30, 2011
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