both circulation and newspaper content. Rosse (1967) also finds important economies
of scale in both the circulation and advertising sides.
Reddaway (1963) provides evidence on the importance of fixed costs in the UK
newspaper industry, using detailed information on the cost structure of various papers,
including the differences between local and national papers, as well as between quality
and popular papers. Reddaway asks how it can be that the “quality” national papers
in Britain could compete with the “popular” papers, when the former had a tenth of
the circulation of the latter, as well as higher per-copy costs stemming from their larger
physical size. The answer, of course, lies in the greater ability of quality papers to charge
advertisers for delivering the most desirable audiences to them.
Berry and Waldfogel (2010) examine how market size affects the quality and variety
of products. They focus on two markets that are often defined at the level of a city or
metropolitan area: restaurants and newspapers. They show that while the range of qual-
ities in the restaurant industry increases linearly with market size, the same is not true of
newspapers. Although the average quality of newspapers is higher in bigger markets, these
markets do not offer much additional variety. Berry and Waldfogel suggest that fixed
costs are the explanation. In particular, they argue that quality improvements in news-
paper markets depend on investments in fixed costs, such as more or better reporters
and editors, rather than on marginal costs, such as paper, printing, and distribution. They
note that, while some economies of scale in newspaper production seem clear, it is not the
case that newspapers in even very small markets charge much higher prices, suggesting
some upper bound on how important economies of scale are. Of course, this argument
de-emphasizes the importance of the advertising side of the industry, and in fact Berry
and Waldfogel focus entirely on the circulation side of the market, treating advertising
revenue as a per-reader subsidy.
Berry and Waldfogel show that, even in very large markets, the market size of the
largest newspaper remains at least 20%, and usually considerably more, in sharp contrast
to the restaurant industry. The results appear to support the idea that, as market size
increases, at least one newspaper has the incentive to invest considerably in quality in
order to retain readers. Newspapers in larger markets tend to have a bigger staff of jour-
nalists, be physically bigger in terms of page size, and have a higher quality of reporting, as
measured by the number of Pulitzer Prizes won per staff member.
George and Waldfogel (2003) examine the relationship between consumer prefer-
ences and the number of daily newspapers that a market can support. They use zip-code
level newspaper circulation data in the US to show that race has an important relationship
with the number of newspapers in a market. In particular, the tendency for blacks to pur-
chase a daily paper increases with the aggregate number of blacks in the market but
decreases with the number of whites. The tendency for whites to purchase a newspaper
increases with the number of whites but is not affected by the number of blacks. There is a
similar finding with regard to Hispanics and non-Hispanics, but other characteristics,
414 Handbook of Media Economics
such as age and income, do not influence newspaper sales in this manner. George and
Waldfogel present evidence showing that these results are driven by product positioning;
in other words, newspaper content responds to the racial makeup of readers.
What are the reasons why the newspaper industry in the United States is dominated
by local monopolies? Economies of scale are, of course, an important reason, as discussed
above. However, the other obvious candidate is the two-sided nature of the industry and,
especially, the unique effect of advertising in the newspaper industry. Unlike in media
such as television and radio, newspaper readers do not necessarily dislike advertising.
It is not clear that newspaper publishers impose a tradeoff between column inches
devoted to content versus advertising, unlike the obvious such tradeoff in broadcast
media. Newspaper readers should find it costless to skip over advertising, and there
are good reasons why certain types of advertising, such as classifieds, may be positively
valued by consumers. A similar argument holds in magazine markets.
If we assume, then, that print media advertising is at least weakly positive in the con-
sumer utility function, it implies that there are positive cross-elasticities of demand with
respect to both goods provided by publishers. This can lead to a positive spiral whereby
firms with greater circulation attract more advertising, which then further attracts readers
and so on. In the limit, these spirals can imply a monopoly situation, abstracting away
from other factors, such as consumers’ taste for variety, which may support differentiated
products. In fact, newspapers and magazines are not the most extreme example of such a
model.
Rysman (2004) shows that in the Yellow Page industry, advertisers naturally pre-
fer directories with greater circulation, and consumers consult directories with more
advertising.
Kaiser and Song (2009) confirm the hypothesis that readers in print media
may value advertising positively by examining German consumer magazines. See
Section 9.5 for a more detailed discussion of this topic.
This argument relating to network effects can be an important complement to the
scale economies hypothesis to explain newspaper concentration. Yet there remains little
work showing how such positive spirals affect market structure in newspaper and mag-
azine markets. Two examples of studies that model this phenomenon are
Gabszewicz
et al. (2007)
as well as Ha
¨
ckner and Nyberg (2008). However, there is no empirical study
we are aware of that investigates this matter. In fact, most structural analyses of newspaper
and magazine markets model readers as being indifferent to advertising; see
Fan (2013) for
a recent example.
9.3.4 Newspaper Chains
An interesting development in the newspaper industry is that the number of newspapers
that are part of chains has risen tremendously.
Noam (2009) attributes this phenomenon
to economies of scale, which, as discussed in the previous section, grew in importance
with the advent of faster presses, and typesetting equipment, all of which was quite
415Newspapers and Magazines
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