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Valuing New Goods in a Model with Complementarities: Online Newspapers

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  • Matthew Gentzkow

Abstract

Many important economic questions hinge on the extent to which new goods either crowd out or complement consumption of existing products. Recent methods for studying new goods are based on demand models that rule out complementarity by assumption, so their applicability to these questions has been limited. I develop a new model that relaxes this restriction, and use it to study the specific case of competition between print and online newspapers. Using new micro data from the Washington DC market, I show that the major print and online papers appear to be strong complements in the raw data, but that this is an artifact of unobserved consumer heterogeneity. I estimate that the online paper reduced print readership by 27,000 per day, at a cost of $5.5 million per year in lost print profits. I find that online news has provided substantial welfare benefits to consumers and that charging positive online prices is unlikely to substantially increase firm profits.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12562.

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Date of creation: Oct 2006
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Publication status: published as Matthew Gentzkow, 2007. "Valuing New Goods in a Model with Complementarity: Online Newspapers," American Economic Review, American Economic Association, vol. 97(3), pages 713-744, June.
Handle: RePEc:nbr:nberwo:12562

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Cited by:
  1. Matttia De' Grassi Di Pianura, 2012. "Subsidising network technology adoption the case of publishers and E-readers," Working Papers hal-00714447, HAL.
  2. Stühmeier, Torben, 2011. "Das Leistungsschutzrecht für Presseverleger: Eine ordnungspolitische Analyse," DICE Ordnungspolitische Perspektiven 12, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  3. Kaiser, Ulrich & Kongsted, Hans Christian, 2005. "Do Magazines' "Companion Websites" Cannibalize the Demand for the Print Version?," ZEW Discussion Papers 05-49, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  4. Matthew Gentzkow & Jesse M. Shapiro, 2010. "What Drives Media Slant? Evidence From U.S. Daily Newspapers," Econometrica, Econometric Society, vol. 78(1), pages 35-71, 01.
  5. Ricardo Ribeiro & João Vareda, 2007. "Crowding Out or Complementarity in the Telecommunications Market?," Working Papers 07-33, NET Institute, revised Sep 2007.
  6. Lesley Chiou, 2005. "Empirical Analysis of Retail Competition: Spatial Differentiation at Wal-Mart, Amazon.com, and Their Competitors," Occidental Economics Working Papers 3, Occidental College, Department of Economics, revised Nov 2006.
  7. Luis Alberto Zuleta J. & Sandra Zuluaga & Alejandro Becerra & Astrid Bermúdez, 2009. "Efectos de la coyuntura y de las tendencias tecnológicas sobre los diarios impresos en Colombia," INFORMES DE INVESTIGACIÓN 009061, FEDESARROLLO.
  8. Ken Hendricks & Alan Sorensen, 2006. "Information Spillovers in the Market for Recorded Music," NBER Working Papers 12263, National Bureau of Economic Research, Inc.

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