DP11414 Newspapers in Times of Low Advertising Revenues

Author(s): Charles Angelucci, Julia Cagé
Publication Date: July 2016
Date Revised: June 2017
Keyword(s): advertising, Newspaper industry, Newspaper quality, price discrimination, Two-sided markets
JEL(s): L11, L15, M37
Programme Areas: Public Economics, Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=11414

Newspapers' advertising revenues have declined sharply in recent decades. We build a model to investigate the consequences on newspapers' pricing and quality choices of a reduction in advertisers' willingness to pay for readers' attention. In our model, selling subscriptions in addition to newsstand issues allows to price discriminate between readers. We show that lower advertising revenues decrease newspapers' incentives to provide quality, which increases newspapers' incentive to price discriminate whenever readers' sensitivity to quality is sufficiently high. We build a unique dataset on French newspapers between 1960 and 1974 and perform a difference-in-differences analysis using a "quasi-natural experiment": the introduction of advertising on television in 1968, which affects national newspapers more severely than local ones. We find robust evidence of increased price discrimination and decreased quality as a result of the drop in advertising revenues, which may help rationalize current industry trends.