Market Structure and Product Quality in the US Daily Newspaper Market

This paper studies the effects of market structure changes on newspaper quality, subscription prices and advertising rates. It provides a framework to quantify the welfare effect of ownership consolidations taking into account endogenous quality choice. I develop a structural model that captures key features of the U.S. daily newspaper market and propose an estimation strategy that allows me to study product choice with continuous characteristics in an oligopoly market. A new data set on the U.S. newspaper market is collected to identify the demand for newspapers, demand for advertising and the cost structure of newspaper production. Two sets of counterfactual simulation exercises are conducted. The first is a case study of a merger of two newspapers in the Minneapolis market that was blocked by the Department of Justice. The simulation suggests that if it were allowed, readers' welfare would have declined by 6 dollars per household on average, and 15 dollars in the county that would have been affected most adversely. The second exercise quantifies the welfare implications of ownership consolidations in duopoly and triopoly markets. The median loss in reader surplus in duopoly mergers is 16 dollars per household and 5 dollars in triopoly mergers.

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