Newspapers in Times of Low Advertising Revenues
Sciences Po Paris Department of Economics
November 4, 2015
NET Institute Working Paper No. 13-13
Newspaper subscribers are typically charged a lower per issue price than occasional buyers. This difference in prices has recently increased. This paper posits that this tendency may be interpreted as a response to the continuing drop in advertising revenues. We investigate how the reliance on advertising revenues interacts with the incentives newspapers have to adopt subscriber-based readerships. More precisely, we investigate theoretically and empirically the determinants of second-degree price discrimination in two-sided markets. We build a model in which a newspaper must attract both readers and advertisers. Readers are uncertain as to their future benefit from reading, and heterogeneous in their taste for reading. Advertisers are heterogeneous in their outside option, taste for subscribers, and taste for occasional buyers. To estimate empirically the effect of the advertisers' side of the industry on price discrimination on the readers' side, we use a "quasi-natural experiment". We exploit the introduction of advertisement on French Television in 1968, which we treat as a negative shock on advertising revenues of daily national newspapers (treated group), but not on daily local newspapers (control group). We build a new dataset on French local newspapers between 1960 and 1974 and perform a Differences-in-Differences analysis. We find robust evidence of increased price discrimination as a result of a drop in advertising revenues.
Number of Pages in PDF File: 37
Keywords: Price discrimination, Two-sided markets, Newspaper markets, Advertising
JEL Classification: C33, L11, M13
Date posted: October 7, 2013 ; Last revised: November 4, 2015
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