Monday, September 10, 2012

Newspapers' shift from elasticity to inelasticity

I'm still trying to completely comprehend the concept of elasticity, but as soon as I read the chapter in Hoskins et al., I immediately thought of this article from last week by French media analyst Frederic Filloux arguing that newspapers should raise the prices of their print products.

Filloux refers to the concept of elasticity and says that the elasticity is gone from newspaper prices. When I first read this article last week, I kind of skipped over that part because I didn't understand it, but after having read this chapter, his argument makes a lot more sense: He's saying that print newspapers are no longer a good with elasticity of demand because while price increases used to make circulation drop, they now seem to be making it increase - so he says newspapers should raise their print prices. Pretty simple, right?

What his post still seems to be missing is the explanation of why the elasticity is gone from print newspapers, so I tried to use the concepts from this chapter and fill in the blanks. Here's what I came up with: Print newspapers have lost their price elasticity because for those consumers who still demand them, they have no close substitute anymore. Why would that be, when news is so plentiful and free online? Because those who demand print newspapers no longer demand them because of their news, but because they are in print - and there is no close substitute for the "printy-ness" of newspapers. Those who demanded newspapers for their news fell away years ago, once they found that they could get a close substitute for their news online, for free (or much cheaper). Those who are left as newspaper subscribers, then, are not subscribing for news, but because they like the convenience, routine, or familiarity that print gives them.

According to the Hoskins chapter, when there are no close substitutes, price elasticity of demand drops. And according to Filloux, that's happened with print newspapers. It's a counter-intuitive argument, but one that makes a lot of sense once you understand the economic principles behind it.

1 comment:

  1. Makes complete sense, and yes, I too was thinking that newspapers should raise their prices when I read the chapter, given my impression that demand doesn't change much.

    Although, I bet there is a point where people would give up the newspaper if the price were high enough. So the elasticity would return at some point, when a newspaper just isn't worth $10 or whatever.

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