Uniform Pricing Regulation in the Japanese Newspaper Industry

Abstract

Under a directive of the Japan Fair Trade Commission newspapers in Japan are required to set retail prices that do not vary from place to place. The newspapers may set their own prices freely but the price of any particular edition of a newspaper must not vary from place to place within Japan - a regime of mandated uniform pricing. In this study, I develop a model in which Bertrand duopolists both sell in a city market and in a smaller, local market. I show that when the difference in scale of the two markets is not extremely large and each firm has lower costs in the city market, the firms attain greater profits under the mandated uniform pricing regime than under the differentiated pricing regime. This is because under mandated uniform pricing the prices in the city market get pushed towards the cartel level. I also show that a requirement that the firms serve both markets (mandated universal service) might be coupled with mandated uniform pricing. Mandated universal service increases costs, but mandated uniform pricing can increase profits.

Keywords: multimarket competition, cost asymmetry, newspaper industry, universal service

JEL Classification: D43, L13