News Aggregators and Competition Among Newspapers in the Internet

In this paper, we study how the presence of a news aggregator affects competition among (horizontally differentiated) newspapers in the Internet. For this purpose, we build a model of multiple issues which allows each newspaper to choose quality on each issue. Our model provides a micro foundation for the service offered by the aggregator and captures both the "business-stealing effect" and the "readership-expansion effect" of the aggregator. We find that the presence of the aggregator leads each newspaper to specialize in terms of news coverage. In this case, its presence changes quality choices from strategic substitutes to strategic complements. In the case of symmetric newspapers, this leads to an increase in the quality of newspapers and an increase in consumer surplus, with an ambiguous effect on newspapers’ profits. In the case of asymmetric newspapers, quality can increase or decrease depending on the sensitivity of advertising revenue to quality.