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Scale Economics, Market Power, and Pricing Behavior Evidence from German Newspaper and Magazine Publishing

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  • Lehmann, Erik
  • Weigand, Jürgen
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    Abstract

    The anomalous inverse concentration-price relationship observed by some researchers in the newspaper market has been attributed to scale economies. In this paper we suggest that the newspaper's (or magazine's) double-product feature (i.e., news supplied to readers and advertising space supplied to advertisers) is the main source of this anomaly. In a simple oligopoly model it is shown how a profit-maximizing publisher takes advantage of that feature. Empirically an inverse concentration-price relationship may arise if double-product pricing is not controlled for. Regression results for a cross-section of 222 German Newspapers and magazines corroborate the theoretical implications. --

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    Bibliographic Info

    Paper provided by University of Rostock, Institute of Economics in its series Thuenen-Series of Applied Economic Theory with number 14.

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    Date of creation: 1998
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    Handle: RePEc:zbw:roswps:14

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    Keywords: Scale Economics; Advertising; Concentration; Pricing Behavior;

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    1. Ferguson, James M, 1983. "Daily Newspaper Advertising Rates, Local Media Cross-Ownership, Newspaper Chains, and Media Competition," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 26(3), pages 635-54, October.
    2. Rosse, James N, 1970. "Estimating Cost Function Parameters without Using Cost Data: Illustrated Methodology," Econometrica, Econometric Society, Econometric Society, vol. 38(2), pages 256-75, March.
    3. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262200716, December.
    4. Clarke, Roger & Davies, Stephen W, 1982. "Market Structure and Price-Cost Margins," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 49(195), pages 277-87, August.
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