free commuter newspapers and the market for
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Free commuter newspapers and the market for
paid-for daily newspapers
Michal Masika
LMU University of Munich
9th Workshop on Media Economics
28 October 2011
Do low quality news crowd out high quality news?
Aim:
This paper examines the substitution patterns between low and
high quality news (free newspapers vs. traditional daily newspapers
in Switzerland)
Motivation:
I Free newspapers constitute good measure for low quality news
I The impacts on the overall quality in newspaper industry were
hotly debated (e.g. court cases)
Novel dataset of free daily newspapers with considerable
variation over time and across markets
Method:
1. Novel dataset of Swiss daily newspapers including multihomer
data and sociodemographic data
2. Time span with variation over time, across markets and across
sociodemographic groups in the market
3. Usage of specific features of free newspapers (e.g. distribution via
transport system) for the identification
Increased competition by low quality newspapers does not
crowd out high quality newspapers
Results:
An increase in average number of free papers by one leads to a
decrease in average number of paid-for papers by 0.14.
I This effect is largely driven by multihomers’ substitution activities
I Free papers take readership only from local low quality papers
I No significant effect on readership of paid-for papers among
highly educated people
Contribution: Extension to the studies examining impacts
of media competition (novel dataset)
First paper to study the impact of expansion of free
newspapers on traditional daily newspapers.
Literature:
I Positive effect of press competition on the news quality
(Gentzkow and Shapiro, 2008)
I Negative impact of market competition on the news quality
(Zaller, 1999; Schauer, 1986)
Contribution: Multi-homing is important but overlooked
There are almost no empirical studies considering shared
preferences and possible multi-homing among readers.
Literature:
I Developing of empirical model allowing for multi-homing
(Gentzkow, 2007)
I Shared preferences play an important role in media markets
(George and Waldfogel, 2003; Waldfogel, 2003, 2004)
Large (Pseudo) Panel from 1999-2008 for Switzerland
Aggregated data based on annual interviews with ca. 23.000
people older 14
Data of daily newspapers (60 newspapers)
I Number and characteristics of readers (for 155 counties)
I Data on multihomers
I Number sold (for 2400 municipals, no data for 2005)
Internet/TV/Radio Data
I Number and characteristics of consumers (for 83 counties)
Market (= county) characteristics
I Aggregated sociodemographic data for 155 counties
Empirical Strategy: Usage of the panel structure of the
data
Specification Dependent variable Independent variables
1. Share of paid Number of free papers + Controlsmt
newspaper readersmt read by one personmt
2. Number of paid papers Number of free papers + Controlsmt
read by one personmt read by one personmt
Controls:
I Effects of outside media (online media) - direct
I Prices, business cycle... - time dummies
I Sociodemographics, ... - market fixed effects
Empirical Strategy: Usage of the panel structure of the
data
Specification Dependent variable Independent variables
1. Share of paid Number of free papers + Controlsmt
newspaper readersmt read by one personmt
2. Number of paid papers Number of free papers + Controlsmt
read by one personmt read by one personmt
Controls:
I Effects of outside media (online media) - direct
I Prices, business cycle... - time dummies
I Sociodemographics, ... - market fixed effects
Identification - Usage of unique features of free newspapers
1. Free newspapers’ expansion is exogenous - via transport system
→ Usage of longitudinal data (variation over time and markets)
2. However, there are endogeneity concerns - demand for information
I Usage of instrumental variable
(fraction of commuters commuting on public transport to
counties with free newspapers)
I Identification of effect from the relationship between changes in
free paper penetration and changes in traditional paper readership
for different sociodemographic group (e.g. young vs. old)
Identification - Usage of unique features of free newspapers
1. Free newspapers’ expansion is exogenous - via transport system
→ Usage of longitudinal data (variation over time and markets)
2. However, there are endogeneity concerns - demand for information
I Usage of instrumental variable
(fraction of commuters commuting on public transport to
counties with free newspapers)
I Identification of effect from the relationship between changes in
free paper penetration and changes in traditional paper readership
for different sociodemographic group (e.g. young vs. old)
Identification - Usage of unique features of free newspapers
1. Free newspapers’ expansion is exogenous - via transport system
→ Usage of longitudinal data (variation over time and markets)
2. However, there are endogeneity concerns - demand for information
I Usage of instrumental variable
(fraction of commuters commuting on public transport to
counties with free newspapers)
I Identification of effect from the relationship between changes in
free paper penetration and changes in traditional paper readership
for different sociodemographic group (e.g. young vs. old)
Free newspapers are substitute to the paid-for newspapers
Extensive Intensive Paid-for paper
Usage Usage Circulation
FE IV FE IV FE IV
Number of free papers 0.016 -0.050 -0.076** -0.144* -0.012 -0.057***
read by one person (0.28) (0.29) (0.34) (0.070) (0.013) (0.016)
Usage of online 0.013 0.003 0.002*
media (0.007) (0.004) (0.001)
SE clustered county county county county county county
Observations 830 820 830 820 14859 14562
I Increase in average number of read free papers by one leads to
decrease in average number of paid-for papers by 0.14.
I This effect is largely driven by multihomers.
Free newspapers take away readership only from local
newspapers
Quality: region based Quality: price based
high low high low
FE IV FE IV FE IV FE IV
Intensive free 0.003 -0.005 -0.078** -0.144** -0.005 -0.029 -0.071** -0.120*
paper readership (0.013) (0.019) (0.030) (0.062) (0.011) (0.027) (0.031) (0.064)
Usage of the 0.003* 0.011* 0.002 0.011*
Online News (0.001) (0.006) (0.002) (0.006)
Constant 0.192*** 0.824*** 0.258*** 0.758***
(0.003) (0.010) (0.006) (0.010)
Fixed effects County County County County County County County County
Counties 830 820 830 820 830 820 830 820
I Increase in average number of read free papers by one leads to
decrease in average number of paid-for local papers by 0.14.
Free newspapers take away only less educated readers
Highly educated Less educated
IV Estimation without with without with
multihomers multihomers multihomers multihomers
Number of free papers 0.068 0.079 -0.070 -0.152*
read by one person (0.78) (0.50) (-1.30) (-1.69)
Observations 820 820
Conclusion
I Free newspaper expansion leads to a decline in paid-for newspaper
readership.
I Free newspapers take away readership only from local newspapers
Additional implications:
⇒ Not considering multihoming leads to bias.
⇒ The concerns that expansion of free newspapers leads to a
decline in overall quality could not be confirmed.
Thank you for your attention.
Intensive paid-for Extensive paid-for Heavy paid-for
readership readership readership
FE IV FE IV FE IV
Intensive free paper -0.076** -0.144** 0.016 -0.050* -0.040 -0.078
readership (0.034) (0.070) (0.028) (0.029) (0.034) (0.066)
Usage of online 0.013* 0.003 0.007
media (0.007) (0.004) (0.006)
Constant 1.006*** 0.712*** 0.851***
(0.011) (0.006) (0.012)
Fixed effects County County County County County County
Time dummies yes yes yes yes yes yes
Counties 830 820 830 820 830 820
Notes: Standard errors in parentheses: Standard errors are clustered on the county level
* p < 0.10, ** p < 0.05, *** p < 0.01
The newspaper readership per capita: Considerable
variation over time and across markets
variable year N mean sd p5 p95
Paid-for 2000 155 0.708 0.137 0.345 0.875
newspaers 2008 155 0.647 0.135 0.357 0.810
Free 2000 155 0.037 0.068 0.000 0.191
newspapers 2008 155 0.330 0.167 0.000 0.552
The average number of newspapers read by one person
varies over time and across markets.
variable year N mean sd p5 p95
Number of paid papers 2000 155 0.975 0.247 0.385 1.296
read by aver. reader 2008 155 0.852 0.226 0.406 1.184
Free 2000 155 0.037 0.068 0.000 0.191
newspapers 2008 155 0.330 0.167 0.000 0.552
References I
Gentzkow, M. (2007): “Valuing new goods in a model with
complementarity: Online newspapers,” The American Economic
Review, 97(4), 713–744.
Gentzkow, M., and J. M. Shapiro (2008): “Competition and Truth
in the Market for News,” Journal of Economic Perspectives,
22(2), 133–154.
George, L., and J. Waldfogel (2003): “Who Affects Whom in Daily
Newspaper Markets?,” The Journal of Political Economy,
111(4), 765–784.
References II
Schauer, F. (1986): “The Role of People in First Amendment
Theory,” in Symposium: New Perspectives in the Law of
Defamation.
Waldfogel, J. (2003): “Preference Externalities: An Empirical
Study of Who Benefits Whom in Differentiated-Product
Markets,” The RAND Journal of Economics, 34(3), 557–568.
(2004): “Who Benefits Whom in Local Television
Markets?,” Brookings-Wharton Papers on Urban Affairs, pp.
257–284.
Zaller, J. (1999): “Market Competition and News Quality,” .
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