London Newspaper S Price War

Print newspaper demand in the 1990s in London became a war between the four biggest newspaper firms, this war involved the p]iFrom an economic position, the interrelationship of the sub-markets is a salient characteristic of mass media. Even though this interrelationship is not an exclusive characteristic of media markets, they are surely an important example for this phenomenon.
The deciding feature of interrelated markets is the interdependency of the respective demands. An increment of the demand for, say, newspapers also results in an increasing demand for advertising. In contrast to standard complementary products, the reverse relation is not unconditionally symmetric. For example, if the readers’ valuation for advertising is negative (see Blair and Romano 1993) there are asymmetric relations. Thus, products offered by a media firm are neither pure substitutes nor complements. Moreover, and at least as important as the asymmetries, the consumers of the two products are not identical. Therefore, interrelated markets can be described as a peculiar phenomenon, which is not comparable with typical product market relations.
As mentioned above, media firms that publish newspapers or magazines have to consider two markets, the markets for the medium itself (primary market) and the market for advertising (secondary market). Since supplements in print media also generate additional costs and require additional prices, a differentiated consideration of advertisements and supplements would probably be appropriate.
Therefore, at least two or three different prices have to be considered by the
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publisher, neglecting price and product differentiation. Moreover, a number of additional parameters are subject of the optimisation process as, for example, the quality of editorial contents and advertising.
Similar market relations as for print media can be found with Internet portals.
The Internet provider has to optimise access fees on the one hand and advertising rates for banners on the other hand. Also television and radio stations have to consider primary and secondary markets, the broadcasting and advertising market.
However, in contrast to other media and apart from Pay TV, free-to-air broadcasters only have to optimise the advertising rate. Despite the absence of prices for viewer, the TV and radio stations compete in program quality in primary markets. A further example of interrelated media markets are cinemas. The cinema operator is faced with the demand for three different products, therefore she has to optimise the respective prices. Apart from ticket prices and advertising rates, also a vector of concession rates has to be set.
Interrelated markets, also exist in other sectors (even though they are frequently associated with media markets). Sports events, for example, combine several markets, where the demand for advertising, concession, broadcasting and, last but not least, the event itself, are characterised by interdependency. And also other events like music concerts or theatre performances and, additionally, institutions like amusement parks are all different types of interrelated markets, if advertising plays any role for these events.1
Further features of media markets
While the interrelationship of primary and secondary markets is the main feature of the mass media there are also some additional important characteristics to be discussed in the following. These features distinguish media markets from other
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interrelated markets.
Especially the print media exhibits large economies of scale, as a number of empirical studies on newspapers and magazines have shown. Moreover, the existence of these scale economies is frequently asserted as a main reason for the persistent concentration in media markets and, therefore, for market power. Furthermore, intra-industry concentration and also cross-ownership of media products is a characteristic worth mentioning. Not only in Germany, but also in
Europe, the United States and Australia, there are several firms which operate in different media branches such as print media, radio broadcasting and television.
Some few examples of the largest worldwide acting cross-ownership firms are AOL
Time Warner, Bertelsmann, Viacom, or Rupert Murdoch’s News Corporation.
An important requirement for analyses on interrelated demand is the definition of the relevant markets. This is not always a trivial task. Even if the primary markets, as for example copy markets, are concentrated, it is not necessarily the case that the secondary markets are also highly concentrated as well. Because of possible substitutional relationships, especially to advertising space in various different media products, market delineation is not identical for primary and secondary markets. The consequence are asymmetries with respect to markets structures. A further characteristic of media products is an effect that can be described in terms of habit formation or addictive behaviour. Newspaper habit and particularly
Internet addiction (see for example Stein 1997, Griffith 1999 or Beard
2002) are phenomena subject to psychological and psychiatric research. Not only subscriptions, but also newsstand sales seem to be path depending. Moreover, some mass media have public good properties because both, radio and TV broadcasting are neither not rival and to some extend not excludable. Note, that this
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only holds for the primary market, as of course, advertisements are excludable and rival products. Other mass media can be described as network goods. In this connection, the Internet should be beyond dispute, because of its physical network properties, but also newspapers, magazines or television programmes can be considered as some kind of network products, namely in the sense of social networks. Of course, media products are also frequently characterised by price discrimination. Newsstand prices (i.e. of newspapers or magazines) and subscription rates are typically differentiated. The same is true for Internet portals or for Pay TV programmes.
Finally, also regulation of mass media is an important feature. Because of the existence of economic factors like scale economies, barriers to entry and relatively high fixed cosjts, but also for political reasons the media sector is usually (still) heavily regulated. Some other features and aspects of mass media will not be considered in the following, even if they are interesting fields of economic studies.
Therefore, topics such as the convergence of the media (see e.g., Nilsson, Nuld´en and Olsson 2001) or the essential facilities characteristics of mass media will not be discussed.2
However, the focus of this paper is basically on the pricing behaviour in interrelated markets and related topics.
The paper is organised as follows: In the next section theoretical considerations of media markets are reviewed and in the fourth section some empirical work on interrelated markets and the peculiarities of mass media is discussed.
The last section concludes.