Rising Prices under Declining Preferences: The Case of the U.S. Print Newspaper Industry

Abstract

Between 2006 and 2011, daily print newspapers in the United States lost 20% of their paid subscribers, partly because of the increasing availability of alternative sources of news, such as free content provided on newspaper websites and by news aggregators such as Yahoo. However, contrary to the expectation that firms respond to softening demand by lowering prices, newspapers increased subscription prices by 40%–60% during this period. In this paper, we explain and quantify the factors responsible for these price increases. We calibrate models of readership and advertising demand using data from a top-50 U.S. regional print newspaper. Conditional on these demand models, we calibrate the newspaper’s optimal pricing equations and assess whether the increases in subscription prices are mainly rationalized by (a) the decline in overall reader willingness to pay (WTP) in the presence of heterogeneity among subscribers, which rendered it optimal for the newspaper to focus on the high WTP readers, or (b) the new...