Robert H. Heath

The Unraveling of Newspaper Economics

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Thanks for your kind comments.

I wrestled with the issue of how to present cause-and-effect regarding bundling and monopoly.

It's certainly easier for bundling to work in the presence of a distribution monopoly and in the extreme case, bundling won't work in a purely competitive and transparent market in which the bundled goods are priced separately and more cheaply. But bundling doesn't require a monopoly to work as a pricing strategy.

As I recall it, bundling can be effective if consumers have heterogeneous demands (you prefer the business news, I like the comics and weekend section) and the firm cannot price discriminate.

In the newspaper industry, it's certainly true that newspapers bundled all manner of content back in the day when most cities had at least two major papers or more.

My diagram suggests a one-way causal relationship, which is a limit of a two-dimensional diagram and perhaps my creativity. In reality, I think all these factors reinforced each other in a "complex" and self-reinforcing relationship.

And yes, "surplus economics" is "profit". I chose the former term to emphasize my belief that even if newspapers could instantaneously transition their businesses to the web, eliminate their newsprint and physical distribution costs and successfully deploy micro-payment and subscription models, it still might not provide the same profit as their old business model because they can no longer expect the economic benefits of bundling third-party content that's readily available (often for free) elsewhere on the web.

Thanks again.