Valuing New Goods in a Model with Complementarities: Online Newspapers

51 Pages Posted: 8 Oct 2006 Last revised: 19 Jan 2007

See all articles by Matthew Gentzkow

Matthew Gentzkow

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Date Written: October 2006

Abstract

Many important economic questions hinge on the extent to which new goods either crowd out or complement consumption of existing products. Recent methods for studying new goods are based on demand models that rule out complementarity by assumption, so their applicability to these questions has been limited. I develop a new model that relaxes this restriction, and use it to study the specific case of competition between print and online newspapers. Using new micro data from the Washington DC market, I show that the major print and online papers appear to be strong complements in the raw data, but that this is an artifact of unobserved consumer heterogeneity. I estimate that the online paper reduced print readership by 27,000 per day, at a cost of $5.5 million per year in lost print profits. I find that online news has provided substantial welfare benefits to consumers and that charging positive online prices is unlikely to substantially increase firm profits.

Suggested Citation

Gentzkow, Matthew Aaron, Valuing New Goods in a Model with Complementarities: Online Newspapers (October 2006). NBER Working Paper No. w12562. Available at SSRN: https://ssrn.com/abstract=934757

Matthew Aaron Gentzkow (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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