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Subject Proposed newspaper mergers come under Department of Justice Scrutiny.
Topic Government and the Economy; Oligopoly; Market Failure, Regulation and Public Choice
Key Words

Gannett, New York Times Co., Justice Department, anti-trust, competition

News Story

The U.S. Justice Department is investigating proposed plans by some major newspaper publishers to buy up additional medium-sized newspaper syndicates. Cincinnati-based Gannett Co., publisher of USA Today, is bidding to buy Pulitzer, Inc., owner of the Arizona Daily Star and St. Louis Post-Dispatch, among others, for about $1.5 billion plus assumption of debt. Gannett also wishes to purchase Livonia, Michigan based HomeTown Communications, publisher of a number of Midwestern newspapers. Meanwhile, New York Times Co is expected to bid $16.5 million for a 49% stake in Metro Boston, a free daily paper that competes with the Boston Globe, also owned by the Times.

The Justice Department is concerned that Gannett's purchase of HomeTown Communications will reduce competition in Midwest markets and raise advertising rates in key cities. The Times purchase of Metro Boston raises similar concerns. Economic theory would suggest that as the number of firms in a market fall, the available choices to consumers are reduced. In this context, the ability of firms to advertise in different outlets may fall; the ability of firms to advertise in only one (or a few) may fall as the publishing company tries to provide incentives to advertise in more outlets than before; or the diversity of opinions expressed in the newspapers falls. All of which lead to a less efficient outcome than before.

The Justice Department faces some difficulties in this case; part of the difficulty lies in the definition of a market. Proponents of the Times purchase in Boston argue, "The Metro is a single free newspaper in the Boston media market, which has 18 paid-daily newspapers, not to mention a considerable number of free weekly newspapers…" This presents a problem because the Justice Department considers market concentration when determining the extent of anti-trust activity. The larger the market is defined, the smaller the probability that the Justice Department will see anti-competitive behavior. Further, the Justice Department tends to look at newspaper advertising as separate from other forms of advertising, and critics of this approach argue that it is necessary to consider the impact of Internet, television and direct mail separately as they address anti-trust concerns.

Questions
1.

What benefits accrue to Gannett News for purchasing additional newspapers publishers? Are there any external costs associated with its purchase of another newspaper chain?

2. What role does the Internet play with respect to media advertising? That is, what is the difference between advertising in the New York Times and advertising on www.nytimes.com? In other words, should the Justice Department expand its definition of newspaper advertising?
3. Assuming that the Times purchases Metro Boston, what impact do you think this will have on advertising rates in the free newspapers in Boston? Why? Use economic arguments in constructing your answer.
Source John R Wilke and James Bandler. "Newspapers Face Antitrust Scrutiny." The Wall Street Journal, 28 January 2005.

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