Media Plurality: Private versus Mixed Duopolies

• DOI: http://doi.org/10.1111/jpet.12210
• Date: 01 December 2016
• Author: ARMANDO JOSÉ GARCIA PIRES
• Published date: 01 December 2016

MEDIA PLURALITY:PRIVATE VERSUS MIXED DUOPOLIES

ARMANDO JOS ´

E GARCIA PIRES

Centre for Applied Research at NHH (SNF)

Abstract

In this paper, we analyze the level of media plurality in a market with

two private news firms (private duopoly) and in a market with a pri-

vate news firm and a public news firm (mixed duopoly). In the private

duopoly news firms maximize profits. In the mixed duopoly, the private

news firm maximizes profits, while the public news firm maximizes so-

cial welfare. We show that, in spite of the public news firm maximizing

social welfare, neither media plurality nor social welfare needs to be

higher under the mixed duopoly compared with the private duopoly.

This will depend on the relation between the costs of adapting news

to readers’ political preferences, the intensity of the readers’ political

preferences, and the size of the advertising market.

1. Introduction

Media plurality refers to the diversity of political opinions with voice in the news

market. It is consensual that media plurality increases social welfare, since it satisfies

readers’ diverse political preferences and promotes democracy (see Mill 1859). In fact,

in both the United States and the European Union (EU), it is acknowledged that media

plurality is a public good that must be protected. For instance, the Charter of Funda-

mental Rights of the European Union states in article 11, “The freedom and pluralism

of the media shall be respected.” The First Amendment to the United States Constitu-

tion also includes a provision to protect the freedom of the press.

In recent years, media plurality has received a renewed interest in both the United

States and the EU (see Sunstein 2006, for the United States; and Czepek, Hellwig, and

Nowak 2009, for Europe). Important contributions in this respect have been the last

presidential elections in the United States, the polemic on the liberal versus conserva-

tive bias of the press, and the so-called “Italian case” where Silvio Berlusconi was simul-

taneously the owner of the main private broadcasters in Italy as well as the head of the

Italian government and therefore controlling the public broadcaster, RAI. As a result of

these debates, both the United States and the EU have recently introduced media plu-

rality observatories, like the EU’s Media Plurality Monitor and the United States’ Federal

Communications Commission Diversity Index (see, Lefever, Wauters,and Valcke 2013).

Armando Jos´

e Garcia Pires, Helleveien 30, 5045 Bergen, Norway (armando.pires@snf.no).

The author would like to thank the editor Myrna Wooders, the anonymous associate editor,and two

anonymous referees for extremely helpful comments and suggestions. The paper has also benefited

greatly from discussions with Hans Jarle Kind.

Received June 13, 2016; Accepted June 19, 2016.

C2016 Wiley Periodicals, Inc.

Journal of Public Economic Theory, 18 (6), 2016, pp. 942–960.

942

Media Plurality 943

A common fear in the media plurality debate is that news markets with only pri-

vate actors cannot guarantee media plurality, since they mostly follow profit motives

(Gabszewicz, Laussel and Sonnac 2001, 2002). This may be so for two reasons. First, the

provision of media plurality can increase the costs of news firms due to the extra costs of

gathering information and adapting news to the readers’ political preferences. Second,

the provision of media plurality can imply that news firms have to focus on nonmain-

stream political opinions, which generates less demand and therefore less advertising

revenues.

Some argue therefore that governments should try to solve this market failure with

the introduction of public news firms, whose objective is to maximize media plurality

(see Gardam and Levy 2014). In fact, this is the main argument in support of public

broadcasters in both Europe and the United States. Furthermore, public news broad-

casters are ubiquitous in Europe (in both radio and TV) and carry an important weight

in the media market, from the BBC in the United Kingdom, to RAI in Italy, to TVE

is Spain, and so on. Although in the United States private actors dominate the news

market, public broadcasters, such as the Public Broadcasting Service (PBS) and Na-

tional Public Radio (NPR), are even so important and well established players. On pub-

lic broadcasters in Europe and the United States, see Centre for Media Pluralism and

Media Freedom (2013) and Pew Research Center (2015).

Markets characterized by the presence of both public and private firms are usu-

ally called mixed oligopolies (see Harris and Wiens 1980; Cremer, Marchand, and

Thisse 1989; De Fraja and Delbono 1990; Estrin and de Meza 1995; Matsumura 1998;

De Donder and Roemer 2009; Pal and Saha 2014). The literature on mixed oligopolies

starts from the premise that when private actors do not provide the market with some

public good, such as media plurality, governments have three options. The first op-

tion is to introduce a regulatory body that regulates and controls the industry behavior

in terms of providing such a good (see Armstrong and Sappington 2006; Bergantino,

De Villemeur, and Vinella 2011). The second option is to build public–private partner-

ships to supply the good in question (see Hart 2003; Iossa and Martimort 2015). The

third option, the so-called mixed oligopolies option, is to introduce a public firm that

produces this good and that competes directly with the private firms with the objec-

tive of influencing them to also provide the public good (see Harris and Wiens 1980;

Gardam and Levy 2014).

In the news market, as we have mentioned, mixed oligopolies are a widespread

phenomenon across many countries. Such is not the case with media regulation and

private–public partnerships. In fact, the media industry fiercely opposes media regula-

tion or partnerships with public news firms, since it goes against one of the founding

principles of journalism: independence and freedom of the press. In this sense, it is

important to assess whether mixed oligopolies in the media market can contribute to

more media plurality. The idea behind mixed oligopolies in the news market is that by

maximizing social welfare, public news firms could balance the news market between

the need to generate profits and the need to provide media plurality. In particular, the

role of the public news firms would be to influence the behavior of private news firms

in terms of media plurality. If the presence of a public news firm promotes media plu-

rality, then, according to the literature on mixed oligopolies, the public news firm has

achieved “regulation by participation.”

In this paper, we study the proposition that markets with public news firms can con-

tribute to increasing media plurality. We then analyze the effects on media plurality of

competition between a private news firm that maximizes profits and a public news firm

that maximizes social welfare. In order to do so, we use the standard modeling strategy