Collusion in the Newspaper Market?

The price of the three national daily broadsheets went up last week to €1.70 - a decision of such startling simultaneity and similarity which you're unlikely to read about in, well, any of the three national daily broadsheets. And while here at Hibernium we don't have access to a handy record of how these things are timed I do seem to recall price changes working quite like this in the past. One newspaper changes its cover price and the others follow within the week. This isn't unusual - La Stampa, La Repubblica and il Corriere della Sera (all quite complementary newspapers) retail at the same level in Italy last time we checked.

Add to this the fact that the newspapers engage in a kind of resale price maintenance, the practise where encouraged to charge the same price as their competitors, and you might wonder if some kind of anti-competitive behaviour is under way. A cartel? Not quite. The three papers are close but nowhere near perfect substitutes and the greater the degree of substitutability the less the scope for cartel-like behaviour. Oil cartel OPEC works (reasonably) well because crude oil is pretty much the same wherever. Newspapers vary in both scope and quality. Cartels are also explicitly illegal and it would be very surprising if the management of the various newspapers rang each other up and coordinated price changes. This is particularly the case when it's quite clear that they don't need to. Theoretical models have been developed to support the notion of firms changing prices in reaction to other firms' pricing signals with not a word of explicit communication.

In the Irish newspaper market a tacit agreement exists whereby a price increase from one newspaper is quickly followed by an increase from the two others. The resale price maintenance ensures that the increase is passed on swiftly and uniformly. Interestingly this is an area where we're somewhat surprised that retailers are so happy to acquiesce. Both the mark-up and own-price elasticity of each newspaper is likely to vary from retailer to retailer. So the loss in sales from a price increase may be compensated by the increase in revenue for a large retailer but not a small one, or even vice versa. So why the I suspect that newspaper retail is an area so profitable as to make such considerations unimportant.

But why are the newspapers so keen to not compete on price? Well they know that customers are fond of their own paper and that cross-price elasticities are low. In other words quite a significant change reduction in price would be needed in order to attract a significant chunk of competitors. And I suspect the revenue attracted from new readers at a much lower price would not nearly be enough to compensate the loss of giving the paper to existing readers for less. And no price competition doesn't mean no competition. Given an equal price you can judge the Irish Examiner's sports coverage to be better than the Irish Independent's and not have your purchase decision confused by price considerations.

So it's clear that the papers have quite happily convinced themselves that price competition isn't in their own collective or individual best interests. And it's hard to argue that the consumer doesn't suffer from prices being higher than what they could be. Independent News and Media in particular seems peculiarly profitable given the questionable quality of much of its Irish stable. So what could the Competition Authority do about this? Very little. First it would have to establish that Irish consumers suffer as a result of abnormally high prices and then they would have to establish that explicitly illegal collusion is taking place (for the record we don't believe that it is). So don't expect to see prosecutions or even one of their very well-meaning reports any time soon. But do expect to be paying €2 for your daily paper (whatever your fancy) by the end of the decade.

Curiosity: The Irish Times now retails £1 in London making it a significantly cheaper product than the product at home. Add to that the fact that the London edition doesn't advertise UK-based businesses and it's clear that it's a significantly lower revenue-rasiser than the Irish edition. Reasons? Well, the London edition is a complementary, rather than integral product. Once the fixed costs of Dublin-based office and staffing are covered by Irish sales the marginal cost of marketing and distribution abroad are very low given today's printing and distribution possibilities. Add to that the fact that it's competing in a lower-price newspaper market and there's no fear of chunks of ITs being picked up in London and whisked for a cut-price sale in Dublin and the lower pricing regime looks quite normal.