and subscription prices, finding negative effects of ad rates on relative magazine prices.
This is consistent with the view that publishers have incentives to lower reader prices
to increase advertising revenues.
The interrelatedness between advertising and readership does not only have implica-
tions for pricing structures. It may also have effects on the political diversity of media.
Assuming that readers dislike advertising,
Gabszewicz et al. (2001) derive a three-stage
game for publishers who first set their political leaning, then ad rates, and finally cover
prices. They show that the feedback from readers to advertisers induces publishers to
locate their political opinion in the center. The feedback from readers to advertising
therefore generates a “median voter behavior” result whereas a model that excludes
advertising (where only political leaning and cover prices were state variables) would
generate classical Hotelling results: publishers position themselves at the two extremes
of the political spectrum.
A more recent study of ideological diversity of US newspapers in 1924 that accounts
for network effects from readers to advertisers (but that assumes readers are ad-neutral) is
Gentzkow et al. (2012). They estimate a model of demand for newspapers, cost, entry,
and revenues to show that media competition increases diversity, and that competition
policy needs to take into account the print media market’s two-sidedness.
9.4.3 Pricing Issues in Print Media
We now discuss a few issues related to pricing in newspapers and magazines. While the
two-sided market framework suggests that advertising and circulation prices are deter-
mined jointly and therefore need to be considered at the same time, there are a few inter-
esting pricing phenomena that need to be considered outside of this framework.
More importantly, while Media Economics usually falls squarely within the purview
of Industrial Organization, some aspects of print media pricing are of interest to other
economists too. Specifically, the macroeconomics literature on the frequency of price
adjustment has devoted some attention to media markets.
Cecchetti (1986) examines
the frequency of price adjustment in US magazine markets using news-stand pricing
and sales data for 38 magazines between 1953 and 1979. He shows that magazines’ cover
prices exhibit substantial stickiness, allowing their real value to erode by as much as a
quarter before the next price adjustment. However, he also shows that prices change
more frequently during periods of high inflation.
Willis (2006) uses the same data to con-
firm some of Cecchetti’s findings.
Knotek (2008) examines newspaper prices—specifically, the fact that news-stand
prices are usually a multiple of a quarter. He points out that newspaper prices have typ-
ically not required pennies for more than the last 40 years. The point is that these round-
number prices facilitate quick transactions and are more convenient than other prices.
Knotek develops a model of how the convenience of transactions affects the choice of
421Newspapers and Magazines
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