Discussion of Time Scarcity and the Market for News by Larbi Alaoui and Fabrizio Germano Sergei Guriev Oct 29, 2011

Summary of the paper A formal model of processing the news stories by readers – and of the strategic ordering of stories by media outlets Reader maximizes news Media outlets maximize readership State of nature: – Newsworthiness of stories on given topics – Content of stories Plays (almost) no role in the current version Potentially helps to understand bias Sergei Guriev

Readers Actions: – Read the story – takes time – but adds to total newsworthiness consumed x – Skip (read the title and continue to the next story) – takes less time – Switch to another outlet – also takes some time – Stop reading altogether (if no positive net expected returns to further reading/skipping/switching) By reading or skipping the story, the reader observes newsworthiness hence updates her beliefs about the state of the world – No dynamic inconsistency (Lemmas 1 and 2) – Still, very complex in general case Sergei Guriev

Main results General framework is too complex consider specific examples Utilities of news u A (x)=x, u B (x)=2x 2, cubic cost of time – Quadratic utility of B news: returns to specialization rather than diversification – Once already learned something about Blackberry, may be better keep reading about Blackberry rather than switch to iPhone (even if iPhone is better in this state of nature) Sergei Guriev

Example #1: Stuck with the wrong story Two states of nature – In the first best, the reader should read only about A in the first state, and – Read only about B in the second state If small switching and skipping costs, the efficient equilibrium is implemented If switching costs are large, may be stuck with the wrong story – Intuitive given the quadratic utility Sergei Guriev

Example #1 continued: Reading too much If skipping and switching costs are sufficiently high, the media outlets can order the news so that the readers have to read extra stories (teasers) first – Readers are rationally aware of this – But still prefer this (as are not sure about the true state of the world) Sergei Guriev

Example #2: Strategic misordering One state of nature – Better reading one A story than three B stories Low switching costs but high skipping costs Firms strategically make readers start with the wrong stories (B stories) Readers know that A is better but hard to get to A (need to skip three B stories) Competition (due to low switching costs) does not improve things: – Better keep a few readers who read 3 stories each than many readers with one story each A room for a social planner subsidizing readership Sergei Guriev

Comments An interesting and realistic general framework Example #2: skipping costs are unrealistically high – Even though opeds are not on the front page, many go straight there How important is ordering at all? – Not just low skipping costs but search Given limited attention span of readers, too many stories in one paper – Better have one effect per paper but analyzed in a general case Sergei Guriev

Questions/Suggestions Check the non-media benchmark: imperfect competition model (with switching costs) with convex utility Would prices help? Paid subscription? Repeated game? – Outlets reputation for putting best stories on the front page (or good lead articles in academic journals) Welfare analysis: add up readers and firms payoffs? Social planner aware of the state of nature? Sergei Guriev