The existence of bias in news media is well known. Indeed, it is so common that a number of websites are established to spot and report the bias in news. For example, fairspin.org collects the full spectrum of political news and opinions and lets the community vote if a particular story leans left or right. This way, readers work together to separate news from opinion.
Previous research has established a link between subscription fees and media bias. Specifically, it is shown that when readers prefer news consistent with their political opinions, newspapers slant news toward extreme positions to alleviate price competition for subscribers. For many media outlets, however, most of the revenue stems from advertising rather than subscription. This study investigates the role of advertising in affecting the extent of bias in the media.
The authors argue that the effectiveness of advertising, for some products, may depend on the political opinions of readers of the advertisements. For example, whereas “green” products, such as Toyota Prius and an Apple Mac computer, may appeal more to liberals, “American” products, such as the Chevy Truck, may appeal more to conservative consumers. An advertisement that reminds consumers that the product is consistent with their political opinions may increase the likelihood that they purchase the product.
The study identifies two strategic effects that arise due to advertising. The first, “readership effect,” refers to media’s incentive to increase readership. When a newspaper delivers a larger readership to advertisers, it can command a higher advertising fee. Therefore, each newspaper has an incentive to reduce its bias to improve its appeal to moderates and increase its readership. The second, “incremental pricing effect,” refers to each newspaper’s incentive to alleviate competition not only for subscribers but for advertisers as well. When advertising supplements subscription fees as a source of revenue, a newspaper’s choice of bias has an effect on the intensity of price competition in not only the subscription market but the advertising market as well. Therefore, each newspaper has an extra incentive to polarize in order to alleviate competition for advertisers.
The authors demonstrate that when advertising is added as a source of revenue to supplement subscription fees, it may serve as a polarizing or moderating force, contingent upon the extent of heterogeneity (variability) in the appeal of advertisers’ products to readers having different political opinions. When this heterogeneity is large, each advertiser chooses a single outlet for placing ads (single-homing). In this case, the incremental pricing effect dominates the readership effect, and greater polarization arises than when a media outlet relies on subscription fees only for revenues. In contrast, when the heterogeneity is small, each advertiser chooses to place advertisements in multiple outlets (multihoming). In this case, the only strategic effect that advertising introduces is the readership effect, thus leading to reduced polarization of the newspapers.
Esther Gal-Or holds the Glenn Stinson Chair in Competitiveness at the Joseph M. Katz Graduate School of Business at the University of Pittsburgh. She joined the Katz School in 1980 after obtaining her doctoral degree from the Kellogg School at Northwestern University. Dr. Gal-Or’s research interests are in industrial organization, game theory, and the industrial structure of the health care and media markets. Her work has been sponsored by the National Science Foundation and other government agencies. It has been published in economics and management journals such as Econometrica, RAND Journal of Economics, Journal of Economics and Management Strategy, Journal of Business, Management Science, and Marketing Science. She has been serving on the editorial boards of a variety of economics and management journals including European Economic Review, Journal of Economics and Management Strategy, International Journal of Industrial Organization, and Journal of Industrial Economics.
Tansev Geylani is Associate Professor of Business Administration at Joseph M. Katz Graduate School of Business at the University of Pittsburgh. He received his PhD in Marketing from Carnegie Mellon University. His research interests include marketing channels, retailing, information sharing, cobranding, marketing and antitrust, product line strategies, media competition, and user-generated content. Dr. Geylani’s work has been published or accepted for publication in Marketing Science, Management Science, Journal of Marketing Research, and Economics Letters. In 2009, he was named a Young Scholar by the Marketing Science Institute and was also the recipient of the Management Science Distinguished Service Award.
Tuba Pinar Yildirim is interested in studying changes in news media resulting from digitalization. In particular, she studies the impact of user-generated content, advertising, and different subscription models on media bias. In the field of industrial engineering, her research, sponsored by the National Science Foundation, focuses on identifying the cognitive and affective processes that motivate or hinder modeling skill development of new engineers. Her work has been published in leading marketing and engineering journals, including Journal of Marketing and Journal of Engineering Education. Dr. Yildirim received her PhD in Industrial Engineering from the University of Pittsburgh and is working on her second doctoral degree in Marketing at the Katz Graduate School of Business.
Journal of Marketing Research, Volume 49, Number 1, February 2012
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