free commuter newspapers and the market for

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)

Data and Empirics

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

The newspaper readership per capita: Considerable


The number of multihomers of paid-for papers has been

declining.

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)

Empirical Results

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.

Backup

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


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,” .

free commuter newspapers and the market for

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