Competition, Circulation And Advertising

Newspaper Research Journal, Winter 2004 by Lacy, Stephen, Martin, Hugh J

Fewer studies have examined the relationship between competition and circulation prices, and they are somewhat inconclusive. Grotta examined cities that lost a daily and concluded that the prices were higher after a daily closed.37 A case study in Canada supported this conclusion.38 Picard did not find that competition lowered subscription rates.39 In all these cases, the measure of competition was the presence or absence of other dailies, and not the intensity of competition. Research indicates that results are affected by the measure used for competition.40

A national study of clustering in 1988 and 1998 found that clustering, which reduces competition, was associated with higher subscription prices during 1988 but not in 1998.41 The study reported large variations among markets with respect to the relationship between competition and subscription prices. This may reflect variations in strategies. Newspaper managers with only a few competitors might not compete by lowering subscription prices. Those managers instead could match competitors' prices and compete through product differentiation. This is consistent with oligopoly theory with product differentiation.42

Merrilees studied two newspapers in an Australian market that refrained from cover price competition for 34 years. The papers competed instead with innovations in editorial content. The price collusion ended for four years, then its adverse effects on one paper's profits resulted in a new round of cooperation.43

Picard reported in a case study that a single daily in a town enjoys inelastic demand, meaning readers were not sensitive to price increases. Increases in subscription prices by 30 percent led to only a 3 percent decline in circulation.44 Lewis studied 12 dailies across 21 years and estimated that for each 5 percent increase in price, a daily would lose 1 percent of its circulation, although variation was found across markets.45 Studies have not examined what happens to advertising demand as cost per thousand increases as circulation declines.

It appears that when faced with intense competition, many newspapers, but not necessarily all, respond by increasing their newsroom budget to better differentiate their newspaper. This typically includes larger newsholes, more reporters to fill the newshole, more news services and more local news. Some readers, but not necessarily all, see this as higher quality. The newspapers may or may not respond to competition by keeping subscription prices down. Economic models would suggest that this is more likely to happen in markets where two or more newspapers have roughly equal shares of the circulation market, but empirical evidence is mixed.

Competition Among Reporters Makes Them Perform Better as Journalists

Competition can affect the financial decisions of managers. Beam, for example, found that competition was associated with managers' perception of uncertainty about the market, which was positively related to managers' use of readership research.46 In other words, competition causes managers to react by seeking information about what readers want and need. The uncertainty can affect the behaviors of journalists as well, but little research has been conducted about the impact of competition on journalistic behavior. However, the results of the research that does exist are consistent.