a newspaper, which sets subscription and advertising fees to maximise profits under the assumption of a continuum of risk-neutral consumers and two identical firms, which are able to transmit price information using newspaper advertising Thus, advertising is informative and the only source firms can use to publish their prices. Consumers are able to subscribe to the newspaper and, therefore, to receive price information. The equilibrium probabilities to advertise prices are identical for both firms. Given this information, optimal fees are calculated Interestingly, Baye and Morgan derive optimal advertising and subscription rev enues and the share of advertising revenues to total revenues, which is almost the same share as one can observe for the 300 top magazines in the United States 3卫 mpirical studies This section reviews empirical of media markets. As with most theoretical studies the main focus is on print media, i.e. newspapers or magazines. Starting from general considerations of print media, special characteristics of media markets like interrelationship, economies of scale and concentration are examined. Finally, an overview of articles using data on different media products is presented Reddaway(1963)analyses different kinds of newspapers in the United King dom using descriptive statistics by the royal Commission on the Press. His main focus is on the sorts of newspapers that can coexist and the number of papers that are able to survive in a distinct class of newspapers. Reddaway finds that de- spite of the differences in circulation, quality newspapers(with low circulation can coexist with popular'(and high circulation) newspaper. Moreover, even though the first copy cost and the variable costs per copy are higher for qual- ity' newspapers, they are able to survive. One reason lies in the nature of the readers that allows to set higher advertising rates. Reddaway concludes further
a newspaper, which sets subscription and advertising fees to maximise profits, under the assumption of a continuum of risk-neutral consumers and two identical firms, which are able to transmit price information using newspaper advertising. Thus, advertising is informative and the only source firms can use to publish their prices. Consumers are able to subscribe to the newspaper and, therefore, to receive price information. The equilibrium probabilities to advertise prices are identical for both firms. Given this information, optimal fees are calculated. Interestingly, Baye and Morgan derive optimal advertising and subscription revenues and the share of advertising revenues to total revenues, which is almost the same share as one can observe for the 300 top magazines in the United States. 3 Empirical studies This section reviews empirical of media markets. As with most theoretical studies, the main focus is on print media, i.e. newspapers or magazines. Starting from general considerations of print media, special characteristics of media markets like interrelationship, economies of scale and concentration are examined. Finally, an overview of articles using data on different media products is presented. Reddaway (1963) analyses different kinds of newspapers in the United Kingdom using descriptive statistics by the Royal Commission on the Press. His main focus is on the sorts of newspapers that can coexist and the number of papers that are able to survive in a distinct class of newspapers. Reddaway finds that despite of the differences in circulation, ‘quality’ newspapers (with low circulation) can coexist with ‘popular’ (and high circulation) newspaper. Moreover, even though the first copy cost and the variable costs per copy are higher for ‘quality’ newspapers, they are able to survive. One reason lies in the nature of the readers that allows to set higher advertising rates. Reddaway concludes further- 10
more that product differentiation in the newspaper industry leads to monopolistic competition. In connection with high economies of scale he finds that monop- olistic competition leads to concentration within a certain class of newspapers However, the number of separated classes is not affected by the concentration Concentration and price relationship A number of empirical studies on media markets analyse the influence of concen tration and market structure on the newspaper firms' price setting behaviour. All of these studies consider the advertising market because of its importance and be- cause of the comparability of the single products. a high degree of concentration is a typical characteristic of media markets in most industrialised countries In his paper on oligopoly theory Stigler(1964) analysed advertising rates in 53 cities in the United States. Using data on evening newspapers from one- and two-newspaper cities in 1939 he regressed the advertising rates on circulation and circulation to the square within a simple log-linear framework.Stigler found that rates were 5% higher than average in one-newspaper cities and 5% lower than average in two-newspaper cities. Unfortunately, Stigler does not consider the reader market and the interrelationship between the markets Landon(1971) analyses the advertising rates in 68 cities, extending Stigler's examination by using additional control variables like the regional average in- come, product market concentration and retail sales. As Stigler he concludes that advertising rates in monopolies are higher than in oligopolies. However interrelated markets are again not considered A cross-section reduced form analysis is carried out by Ferguson(1983) taking account of the connection to the reader market. To evaluate the influence of media cross-ownership and competition on advertising rates he uses information on 815
more that product differentiation in the newspaper industry leads to monopolistic competition. In connection with high economies of scale he finds that monopolistic competition leads to concentration within a certain class of newspapers. However, the number of separated classes is not affected by the concentration process. Concentration and price relationship A number of empirical studies on media markets analyse the influence of concentration and market structure on the newspaper firms’ price setting behaviour. All of these studies consider the advertising market because of its importance and because of the comparability of the single products. A high degree of concentration is a typical characteristic of media markets in most industrialised countries. In his paper on oligopoly theory Stigler (1964) analysed advertising rates in 53 cities in the United States. Using data on evening newspapers from one- and two-newspaper cities in 1939 he regressed the advertising rates on circulation and circulation to the square within a simple log-linear framework. Stigler found that rates were 5% higher than average in one-newspaper cities and 5% lower than average in two-newspaper cities. Unfortunately, Stigler does not consider the reader market and the interrelationship between the markets. Landon (1971) analyses the advertising rates in 68 cities, extending Stigler’s examination by using additional control variables like the regional average income, product market concentration and retail sales. As Stigler he concludes that advertising rates in monopolies are higher than in oligopolies. However, interrelated markets are again not considered. A cross-section reduced form analysis is carried out by Ferguson (1983) taking account of the connection to the reader market. To evaluate the influence of media cross-ownership and competition on advertising rates he uses information on 815 11