News Media Bargaining Codes

60 Pages Posted: 5 Apr 2023

See all articles by Luca Sandrini

Luca Sandrini

ZEW – Leibniz Centre for European Economic Research; Budapest University of Technology and Economics

Robert Somogyi

Budapest University of Technology and Economics - Department of Finance; Hungarian Academy of Sciences (HAS) - Institute of Economics CERS-HAS (IEHAS)

Date Written: March 23, 2023

Abstract

In this paper, we build a model of the news market where advertisers allocate their ads between a social media platform and a news website that is the content creator. Our main objective is to evaluate a policy intervention that aims to foster news creation by transferring revenues from social media to news websites. Such interventions, commonly referred to as news media bargaining codes, were first introduced in Australia in 2021 and are being implemented worldwide. We build on a novel trade-off between the higher advertising efficiency of social media and the value of content creation by news websites. News content creation exerts a positive externality both on consumers and the social media platform. However, the advertiser fails to fully internalize this externality, generally implying a socially sub-optimal level of news creation. When news quality is unaffected by the policy, we show that the policy intervention mandated by the bargaining code is always welfare-increasing as it results in additional news creation. When news quality is endogenous, we nuance our results by showing that a poorly designed transfer would not induce additional news creation. Notably, even such a transfer would not harm consumers. Finally, we also provide some guidance on how to design the policy.

Keywords: social media, news quality, platform regulation, news media bargaining code, online advertising

JEL Classification: D43, D62, L13, L51, M37

Suggested Citation

Sandrini, Luca and Somogyi, Robert, News Media Bargaining Codes (March 23, 2023). NET Institute Working Paper No. 22-06, 2023, Available at SSRN: https://ssrn.com/abstract=4398480 or http://dx.doi.org/10.2139/ssrn.4398480

Luca Sandrini (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Budapest University of Technology and Economics ( email )

Budafoki ut 8.
Budapest, 1111
Hungary

Robert Somogyi

Budapest University of Technology and Economics - Department of Finance ( email )

Magyar Tudósok krt. 2.
Budapest, 1117
Hungary

Hungarian Academy of Sciences (HAS) - Institute of Economics CERS-HAS (IEHAS) ( email )

Budaorsi ut 45
Budapest, 1112
Hungary

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