The Effects of Monopolization on Newspaper Advertising Rates

Abstract

It is almost universally assumed that monopolization in an industry leads to higher prices and lower output. This paper, however, demonstrates, both intuitively and empirically, that advertisers actually benefit from the geographic concentration of the newspaper industry. A regression, using thirty-five cities, showed advertising prices were positively related to competition, although the coefficients were statistically insignificant. This result is not surprising. Newspaper firms face substantial fixed costs and low marginal costs which creates the potential for a profit seeking monopolist to charge lower prices. In fact, any industry which incurs high fixed costs is apt to experience economies of scale, resulting in lower average costs. If the reduction in average costs is substantial, lower consumer prices will result.