The Impact of Competition on Weekly Newspaper Advertising Rates

Article excerpt

This national study of 432 weekly newspapers found that competition from other weeklies in a county was correlated with a lower cost-perthousand ad rate. However, when a subsample of 236 weeklies with intense competition was analyzed, this relationship with cost per thousand disappeared. Instead, the data showed that as competition became more intense, a weekly's open-column-inch ad rates decreased. Also, when market size was controlled for, ad rates for paid weeklies did not differ from free weeklies' ad rates.

Daily newspapers have experienced a continuing decline in circulation during the past sixty years for a variety of reasons.1 In contrast, weekly newspapers are thriving. Their circulation rose from about 40 million to 75 million during the last twenty years. Free weeklies account for three-quarters of it.2

Despite the rapid growth of weeklies, research on the effects of newspaper competition on advertising rates has focused primarily on dailies. This is difficult to understand given that weeklies are competitive with dailies and among themselves for household penetration in counties outside metropolitan areas.3 Whether or not this competition extends into the advertising market warrants investigation.

The purpose of this study is to expand knowledge about the relationship between newspaper competition and advertising rates by examining a national probability sample of weekly newspapers. This is a replication and extension of two small sample studies conducted a decade or more ago.4 In addition, this study will explore the relationship between weekly and daily competition and advertising rates. The microeconomic model of perfect competition predicts that advertising prices should become lower as competition increases.5 But this model assumes many sellers, and weekly newspapers in competitive markets usually have only a few competitors, if they have any at all. The oligopoly model provides better context for analyzing weekly newspapers because it assumes only a few sellers in a particular market.6

In an oligopoly, prices are affected by sellers' behavior. If sellers act independently of competitors, prices are relatively low, as in competitive markets. In such markets, if sellers do not anticipate that competitors will respond to their price reduction by similarly lowering prices, a "price war" can force down market prices. However, when sellers consider competitors' responses, they keep prices high to avoid a price war. Under this condition, market prices remain high as in a monopoly.7

Although analogous to the illegal act of price collusion, anticipating competitors' actions is an informal and legal understanding between firms.8 Weekly newspapers may choose to operate as if they exist in either a competitive or monopolistic environment.

However, newspapers are joint products that serve two connected markets: a circulation market and an advertising market. It is not price alone that determines advertiser demand. Just as important as price is the number of readers reached by the ad. Advertisers want to know how many readers they can expect to reach for a given price. This advertising reach is typically measured as the advertiser's cost to reach a thousand readers. Newspapers can adjust this cost per thousand by changing the circulation or by changing the price.

Being a joint product increases the likelihood that competition will affect advertising price. If a newspaper finds itself behind in the circulation market, it can lower its advertising rates to become a more attractive purchase in the advertising market. The leading paper might follow suit. The degree of market power often is raised in the examination of advertising pricing in newspaper competition. High levels of concentration may contribute to independence in the setting of rates. Several studies of dailies have found that newspaper monopoly creates high advertising prices.' Other research has shown that competition lowers cost-per-thousand advertising rates,10 which is the price it costs an advertiser to reach 1,000 readers with an ad. …