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Collusion and the political differentiation of newspapers

This research presentation explores the impact of collusion on the political differentiation of newspapers. It examines the incentives to collude in the newspaper market and the outcomes of collusion behavior, including minimal and maximal differentiation equilibrium. The role of advertising in influencing collusion is also studied.

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Collusion and the political differentiation of newspapers

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  1. March 10th 2011 Research presentation Collusion and the political differentiation of newspapers Marco Antonielli MSc Economics Università degli Studi di Firenze NMa trainee

  2. Introduction: Introduction: my work at NMa my work at NMa - Master thesis in Industrial Economics topic - supervisor Prof. Lapo Filistrucchi - Media markets: attention of economists and policy makers - modelling collusion in the newspapers market 2

  3. Two Two- -sided markets: Media sided markets: Media Magazine Copies Ad spaces Readers Advertisers 1. Two groups of consumers 2. Externalities from the two groups 3. The platform is necessary to bridge Why is it important to know that a market is two-sided? Pricing

  4. Media markets Media markets 1. The product is differentiated: take the magazines specilized in cars: one talks about luxury vehicles, one about popular vehicles. One talks about a mix of these topics. In Economics: “horizontal product differentiation” Only luxury vehicles Only popular vehicles Newspapers compete on political orientation: readers buy a newspaper not only for its price but also for the political orientation conveyed in the newspaper Each newspaper selects its political orientation on the political spectrum (only market driven behavior) 4

  5. Media markets Media markets 2. Markets highly concentrated: high cost to start the business, high fixed costs in the production of media contents: Arising of collusion? Newspaper market: Two-sided: effect of advertising Collusive behavior Endogenous differentiation Aims of the work: Study the predicted outcomes of collusion behavior Study the incentives to collude resulting from the advertising 5

  6. Model outline Model outline Readers market Market = political spectrum on which readers are uniformly distribuited; endpoints 0 and 1, market size is 1. Each reader has a political opinion and prefers newspapers with “close” political orientations. Each reader buys only one newspaper (single-home). 2 publishers compete in prices and political orientations. • • • • 6

  7. Model outline Model outline Advertising market Each advertiser decides to place ads in a newspaper depending on the adertising tariff and on the mass of readers of the newspaper Each advertiser has a different propensity to place ads; the advertisers mass is given (parameter) Each advertiser can place ads in none, one or both newspapers (multi-homing) • • • 7

  8. Model outline Model outline Multi-homing on the avertising side Single-homing on the readers side Each advertiser considers the decisions to advertise in the two newspapers separately Each publisher can charge its advertising tariff taking into account only its readership, i.e. act like a monopolist 8

  9. Model outcomes Model outcomes Competitive outcomes Competitive outcomes Minimal differentiation equilibrium Minimal differentiation equilibrium: • newspapers express very similar politics (centre of the spectrum) • prices are very low (zero in the model) • arises when the potential revenues from advertising are so high that the publishers cannot relax competition by offering differentiated products Maximal differentiation equilibrium Maximal differentiation equilibrium: • Newspapers express very different politics (endpoints of the spectrum) • prices are “higher”: competition is relaxed • arises in opposite conditions 9

  10. Model outcomes Model outcomes Collusive behavior Collusive behavior Two kinds of collusion are considered; the publishers coordinate: • a) Political orientation and prices, or b) Prices only. Collusion and defection: when one publisher defects (does not apply the agreed strategy), she surprizes the other one and does higher profits; afterwards, the other starts to "punish" her by returning to the competitive equilibrium. • (this is needed to study the incentives to collude) 10

  11. Model outcomes Model outcomes Collusion on prices and political orientations Collusion on prices and political orientations Intermediate differentiation outcome Intermediate differentiation outcome: • newspapers target exclusive segments of the political spectrum; they "locate" in the middle of their demand • prices are very high: the readers pay the "maximum" Collusion on prices only Collusion on prices only Minimal differentiation outcome Minimal differentiation outcome: • newspapers target express very similar politics (centre of the spectrum) • prices are higher in respect to the other minimal differentiation case 11

  12. Incentives to collude Incentives to collude Is advertising increasing or decreasing the likelihood of Is advertising increasing or decreasing the likelihood of collusion in the newspaper market? collusion in the newspaper market? It depends.. It depends.. NO: NO: when the advertising is very important as source of revenues, more advertising discourages coordination  each newspapers more willing to defect YES: YES: when the advertising is not so important as source of revenues, more advertising encourages coordination  the advertising revenues become more easily to retain 12

  13. Merger analysis Merger analysis • In 1995 the PCM Uitgevers group acquired NRC Handeslblad from Nederlandse Dagblad Unie. • Several newspapers were part of the group, including De Volkskrant • One could ask if the political orientations of De Volkskrant and NRC had a role in the merger: is there a problem for pluralism? • NRC and De Volkskrant are close competitors (target readers similar in political opinion), albeit different in many respects • De Telegraaf is another big journal (the biggest) but it’s more clearly targeted to the right wing • Apply the model predictions to the acquisition/merger?

  14. De Volkskrant and NRC De Volkskrant and NRC • Comparable circulations (around 200,000 for NRC, around 240,000 for De Volkskrant in 2009) Symmetric? • • Close competitors on politics • But different in many respects (e.g. Morning or evening paper, and target customers different in demographics) Match with the model setting implies Match with the model setting implies: Left = political spectrum Advertisers value De Volkskrant and NRC only for their relative circulations (not demographics)

  15. Merger prediction Merger prediction Intermediate differentiation outcomes Intermediate differentiation outcomes: - Newspapers target exclusive segments of the political spectrum (e.g. the left and the right); they “locate” in the middle of those segments so that they keep some distance - Prices are high: readers pay their reservation price minus a factor depending on the transportation cost

  16. Subscription prices Subscription prices Data from 1990 to 2011 Periods: Periods: Pre-merger 1990 – 1994 Post-merger 1995 – 2008 Independent 2009 – 2011

  17. Have prices increased during the post-merger period? Subscription prices (1995=100) Subscription prices (1995=100) 200 180 160 140 120 100 80 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 NRC Handelsblad Volkskrant Telegraaf Trouw

  18. -If De Telegraaf increases its price of 1%, how much De Volkskrant and NRC increase theirs? -If Trouw increases its price of 1%, how much De Volkskrant and NRC increase theirs? Period 90 / 95 Pre-merger Period 95 / 2008 Post-merger Period 2008 / 2011 Independent NRC 3.79% NRC 3.46% NRC 3.01% De Volkskrant 3.41% De Volkskrant 3.55% De Volkskrant 3.14% De Telegraaf 3.24% De Telegraaf 4.02% De Telegraaf 3.57% Trouw 3.42% Trouw 3.28% Trouw 2.32%

  19. Post Post- -merger merger period Sub Sub- -periods periods: Cartel 1995 - 1999 First post-cartel period 1999 - 2003 Second post-cartel period 2003 - 2008 period SubPeriod 2003 / 2008 Second post-cartel SubPeriod 95 / 99 Cartel period SubPeriod 99 / 2003 First post-cartel NRC 2.79% NRC 5.01% NRC 2.75% De Volkskrant 3.30% De Volkskrant 5.23% De Volkskrant 2.40% De Telegraaf 2.87% De Telegraaf 4.92% De Telegraaf 4.23% Trouw 2.70% Trouw 4.81% Trouw 2.52%

  20. Change Change from from previous previous survey survey Average Average rate of the rate of the readers readers Distance Distance between between each other each other Distance Distance from the from the centre centre Significant Significant at 5% at 5% 1994 Everyone De Volkskrant NRC 5.53 4.04 5.44 n/a n/a n/a 1.49 0.09 1.4 1998 Everyone De Volkskrant NRC 5.36 4.11 5.44 -0.17 0.07 0 significant insignificant insignificant 1.25 -0.08 1.33 2002 Everyone De Volkskrant NRC 5.22 3.57 4.76 -0.14 -0.54 -0.68 significant significant significant 1.65 0.46 1.19 2003 Everyone De Volkskrant NRC 5.27 3.59 5 0.05 0.02 0.24 significant insignificant significant 1.68 0.27 1.41

  21. Advertising and circulation 2000 – 2009 Advertising revenues in Euro per year Advertising revenues in Euro per year 200 Millions Millions 180 160 140 120 100 80 60 40 20 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 De Telegraaf De Volkskrant NRC Handelsblad

  22. Annual circulation Annual circulation 900000 800000 700000 600000 500000 400000 300000 200000 100000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 De Telegraaf De Volkskrant NRC Handelsblad

  23. Adv revenues per reader (Euro per year) Adv revenues per reader (Euro per year) 300 250 200 150 100 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 De Telegraaf De Volkskrant NRC Handelsblad

  24. Adv volumes (pages per year) Adv volumes (pages per year) 3500 3000 2500 2000 1500 1000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 De Telegraaf De Volkskrant NRC Handelsblad

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