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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
12562.
Length: Date of creation: Oct 2006 Date of revision: Handle: RePEc:nbr:nberwo:12562
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Find related papers by JEL classification: C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media
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