Advertising and the Rise of Free Daily Newspapers

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Abstract

This paper develops a model of the daily newspaper industry in order to provide a tentative explanation for the rise of free newspapers. This explanation is based on the growth of net advertising revenues per reader, i.e. of the difference between advertising revenue per reader and unit printing cost. Our analysis explains why the new entrant chooses to enter as a free newspaper with a minimum quality level, rather than as a traditional outlet with a positive price and a quality above the minimum. We also examine the welfare effects of this entry.

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