Paying Positive to Go Negative: Advertisers' Competition and Media Reports

Abstract

This paper analyzes a two-sided market for news where two rival advertisers may pay a media outlet to conceal negative information about the quality of their own product (paying positive to avoid negative) and/or to disclose negative information about the quality of their competitor's product (paying positive to go negative). We show that competition in the product market does not necessarily prevent the emergence of commercial media bias. Whether or not competing advertisers end up having negative consequences on news accuracy ultimately depends on the extent of correlation in the quality of their products: the lower the correlation, the higher the expected accuracy of the media outlet's reports. These findings provide a rationale to explain the observed differences in the extent of commercial media bias across seemingly similar industries or products, within the same media market. The results are robust to the presence of multiple media outlets and to asymmetries between the advertisers. Overall, the paper provides theoretical insights for media regulators and for the empirical literature examining the link between advertising and news contents.

Keywords: Advertising, Media accuracy, Two-sided market, Competition, Commercial Media Bias

JEL Classification: L82, D82