Economic effects of media concentration: estimates from a model of the newspaper firm

by James N. Dertouzos, William B. Trautman

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By specifying a five-equation model of newspaper operations and estimating the model with data drawn from a sample of 129 newspaper firms, this paper sheds light on a number of issues: (1) whether there are production economies associated with chain ownership; (2) whether chains are able to disseminate features, national news items, or advertising copy to individual firms at lower cost; and (3) whether chains can acquire materials such as newsprint and ink at discount by purchasing in bulk or exercising monopoly power. On the cost side, the authors confirmed the well-known fact that there are significant scale economies in the production and circulation of news. However, they did not find any evidence that chain newspapers can produce output more efficiently than independents, all things being equal. On the demand side, the authors found that newspapers located in contiguous geographic markets appear to have an important competitive effect on the demand for circulation. However, they could not reject the hypothesis that broadcast stations do not affect the demand for newspaper advertising and circulation.

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