Investigating the News Seeking Behavior of Young Adults

Valuing New Goods in a Model with Complementarity: Online Newspapers

By MATTHEW GENTZKOW*

Many important economic questions hinge on the extent to which new goods either crowd out or complement consumption of existing products. Recent methods for studying new goods rule out complementarity by assumption, so their applicability to these questions has been limited. I develop a new model that relaxes this restriction, and use it to study competition between print and online newspapers. Using new micro data from Washington, DC, I estimate the relationship between the print and online papers in demand, the welfare impact of the online paper’s introduction, and the expected impact of charging positive online prices. (JEL C25, L11, L82)

The effect of new goods on demand for existing products is often uncertain. Convinced that radio broadcasts were crowding out music sales, record companies in the 1920s waged a series of court battles demanding high royalties for songs, leading some networks to stop playing major-label music altogether (Christopher H. Sterling and John M. Kittross 2001, 214; Paul Starr 2004, 339). It soon became apparent, however, that radio airplay dramatically increased record sales, and by the 1950s record companies were paying large bribes to get their songs onto disk jockeys’ playlists (Sterling and Kittross 2001, 294).1 More recently, a much* Graduate School of Business, University of Chicago, 5807 South Woodlawn Avenue, Chicago, IL 60637 (e-mail: gentzkow@chicagogsb.edu). I would like to offer special thanks to Bob Cohen and Jim Collins of Scarborough Research for giving me access to the data for this study. I thank two anonymous referees for insightful comments. I am also grateful to John Asker, Richard Caves, Gary Chamberlain, Karen Clay, Liran Einav, Gautam Gowrisankaran, Ulrich Kaiser, Larry Katz, Julie Mortimer, Jesse Shapiro, Andrei Shleifer, Minjae Song, and especially to Ariel Pakes for advice and encouragement. Jennifer Paniza provided...