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Prices, Margins and Liquidity Constraints: Swedish Newspapers, 1990-1992

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Author Info
Marcus Asplund
Rickard Eriksson
Niklas Strand

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Abstract

A firm facing liquidity constraints in a recession may increase its price to exploit locked-in consumers in an attempt to boost short-run profits. We find support for such behaviour for Swedish regional newspapers during a deep recession. Newspapers sell both subscriptions and advertising space, and arguably buyers of the latter are less locked in. Newspapers with low solvency raised their subscription prices relative to others. In contrast, the changes in advertising price were independent of the newspapers' financial positions. Hence financial constraints affected firms' pricing behaviour only when consumers were locked in. Copyright (c) The London School of Economics and Political Science 2005.

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Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 72 (2005)
Issue (Month): 286 (05)
Pages: 349-359
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Handle: RePEc:bla:econom:v:72:y:2005:i:286:p:349-359

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