Portuguese Economic Journal

, Volume 12, Issue 2, pp 113–130 | Cite as

Free daily newspapers: too strong incentives to print?

Original Article

Abstract

A free daily newspaper distributes news to readers and sells ad-space to advertisers, having private information about its audience. For a given number of distributed copies, depending on the type of audience (favorable or unfavorable), the newspaper may either have a large readership or a small readership. A large readership provides a greater return to advertisers, because ads are visualized by more people. A favorable audience has also the advantage of requiring a lower distribution cost (for a given number of distributed copies), because readers are willing to exert more effort to obtain a copy of the free newspaper and are less likely to reject a copy that is handed to them. We find that when the audience is unfavorable, the number of distributed copies and the price of ad-space coincide with those of the perfect information scenario. In contrast, if the audience is favorable, the newspaper prints extra copies to send a credible signal to the advertisers that the audience is favorable. Overprinting is not necessarily welfare-detrimental since readers benefit from the existence of additional copies.

Keywords

Asymmetric information Two-sided markets Free press 

JEL Classification

D82 D86 L82 

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Copyright information

© ISEG 2013

Authors and Affiliations

  1. 1.CEF.UP and Faculdade de EconomiaUniversidade do PortoPortoPortugal

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