Paper: Rising Prices under Declining Preferences – The Case of the U.S. Print Newspaper Industry | Marketing Science Institute
Adithya Pattabhiramaiah, S. Sriram, and Shrihari Sridhar focus on the U.S. print newspaper industry, a quintessential two-sided market, to study how major changes in advertising demand influences prices to readers and advertisers. Online media present major challenges to traditional advertising-supported markets such as print newspapers. Between 2006 and 2011, daily print newspapers lost 20% of their paid subscribers, fueled by growth in free content by online news aggregators. Contrary to expectation that firms respond to softening demand by lowering prices, newspapers increased subscription prices by 40%-60% during this period. These price increases cannot be rationalized by commonly advanced explanations such as increasing cost and/or quality.
Using data from a top-50 U.S. regional print newspaper, they investigate whether the newspaper industry’s decision to increase subscription prices is indeed optimal. If optimal, they examine the role of two possible explanations for the increase in subscription prices: (1) the newspaper’s strategic decision to drive away low-willingness-to-pay readers or (2) its reduced incentive to subsidize readers at the expense of advertisers, due to softening demand for newspaper advertising.
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Rising Prices under Declining Preferences: The Case of the U.S. Print Newspaper Industry.
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