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Censorship: the Key to Lock-In?

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  • Brendan M. Cunningham

    ()
    (United States Naval Academy)

Abstract

Markets for information and entertainment are frequently characterized by increasing returns to scale in production and distribution. This implies that incumbent technologies enjoy an advantage over newcomer technologies; such markets can become locked into an inferior technology. Governments often heavily influence media markets through both direct ownership and censorship. I present a dynamic model with heterogeneity among consumers and firms in order to analyze the role of censorship in media markets. I assume there is a negative consumption externality across consumers and a negative cost spillover which an incumbent producer imposes on a newcomer. In a decentralized equilibrium, there is over-production of media from the incumbent technology. This reduces consumer utility and engenders lock-in of the inferior incumbent technology. I model censorship as a tax on information produced under the incumbent technology. A central planner who censors incumbent media can improve upon the decentralized equilibrium by reducing negative consumption externalities and unlocking the superior technology. I also show that censorship is only Pareto optimal when coupled with lump-sum transfers across consumers.

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File URL: http://www.usna.edu/EconDept/RePEc/usn/wp/usnawp10.pdf
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Bibliographic Info

Paper provided by United States Naval Academy Department of Economics in its series Departmental Working Papers with number 10.

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Length: 31 pages
Date of creation: Aug 2005
Date of revision:
Handle: RePEc:usn:usnawp:10

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  1. Liebowitz, S J & Margolis, Stephen E, 1990. "The Fable of the Keys," Journal of Law and Economics, University of Chicago Press, vol. 33(1), pages 1-25, April.
  2. Simon P. Anderson & Stephen Coate, 2003. "Market Provision of Broadcasting: A Welfare Analysis," Virginia Economics Online Papers 358, University of Virginia, Department of Economics.
  3. Djankov, Simeon & McLeish, Caralee & Nenova, Tatiana & Shleifer, Andrei, 2001. "Who owns the media?," Policy Research Working Paper Series 2620, The World Bank.
  4. Cowan, Robin & Gunby, Philip, 1996. "Sprayed to Death: Path Dependence, Lock-In and Pest Control Strategies," Economic Journal, Royal Economic Society, vol. 106(436), pages 521-42, May.
  5. David, Paul A, 1985. "Clio and the Economics of QWERTY," American Economic Review, American Economic Association, vol. 75(2), pages 332-37, May.
  6. Brendan M. Cunningham & Peter J. Alexander, 2004. "A Theory of Broadcast Media Concentration and Commercial Advertising," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 6(4), pages 557-575, October.
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