The Impact of Intermedia and Newspaper Competition on Advertising Linage in Daily Newspapers

Article excerpt

This exploratory study of forty dailies found a negative relationship between the number of radio and television stations and daily newspaper ROP advertising. A weaker relationship was found between number of radio and television stations and total advertising linage in daily newspapers. The markets used here varied greatly in competition's impact on Image. It appears intermedia advertising is monopolistically competitive with some media being better at some types of advertising than others. These results hold implications for antitrust actions because the growth in newspaper clusters is based on the assumption that intermedia competition is extensive in newspaper markets.

A truism of the media industry is that newspapers face increasingly complex and competitive markets for advertising.l The growth of other media during the past few decades has been remarkable. The number of radio stations in the United States almost doubled between 1970 and 1996,2 and the number of television stations increased from 872 in 19703 to 1,576 in 1998.4 Daily newspapers' share of total advertising revenues declined from 26.4 percent in 1986 to 22.5 percent only ten years later.5 As the number of media outlets increases, there is a potential for advertising in a greater number of outlets and a greater diversity of media. However, the degree and nature of intermedia advertising competition's impact on newspapers remain unclear. On the one hand, newspaper managers argue they face an extremely competitive advertising market where they fight with other media to survive.6 Media economics scholars, on the other hand, maintain that the print and electronic media are not good substitutes for all types of advertising.7

The nature of intermedia competition with newspapers has gained importance as the newspaper industry becomes more concentrated. The 1990s has seen an increase in groups buying independent newspapers and other groups.8 One force behind this concentration process is the practice of clustering, a business strategy in which a group buys several newspapers in close proximity.9 Clustering allows a group to share printing and distribution costs and to provide regional advertising. Although clustering makes good business sense, there is some evidence that it can reduce competition for readers,lo which in turn can affect newsrooms budgets" and news coverage.12

However, the potential impact of group clustering on regional competition has led to little action by the Justice Department with one exception.13 Observers have suggested that the lack of antitrust activity reflects the recognition that newspapers compete with a variety of media for advertising.14 However, this assumption has received little empirical testing. This study examines this assumption and the nature and degree of intermedia competition for newspapers by using a convenience sample of forty daily newspapers. More specifically, it explores the connection between the availability of other media outlets in a county and number of advertising lines in the daily newspapers.

Theoretical Background

Competition occurs among products when buyers are willing to substitute these products for each other.15 A standard way of defining the degree of substitutability is price cross-elasticity of demand, which is the change in demand for a product when the price of a substitute changes.16 The greater the change (elasticity), the better substitutes the products are for each other. Of course, demand also can be elastic with respect to other variables, such as quality.17

The degree of substitutability reflects the similarity of products. In perfect competition markets, products are homogeneous and, therefore, perfect substitutes. However, in monopolistic competitive markets, products are heterogeneous to varying degrees and substitutability varies.18 Monopolistic competition was developed as a reaction to the limitations of monopoly and perfect competition theories because most markets do not fit the assumptions of these types of theories. …