scispace - formally typeset
Search or ask a question
Journal ArticleDOI

Paying Positive to Go Negative: Advertisers' Competition and Media Reports

TL;DR: The authors analyzes a two-sided market for news where two rival advertisers may pay a media outlet to conceal negative information about the quality of their own product (paying positive to avoid negative) and/or to disclose negative information of their competitor's product (pay positive to go negative).
About: This article is published in European Economic Review.The article was published on 2016-04-01 and is currently open access. It has received 6 citations till now. The article focuses on the topics: Media bias.

Summary (4 min read)

1 Introduction

  • Advertisers and media live in a symbiotic relationship.
  • On the other hand, advertisers may want to specifically influence the information content of the media to influence the consumption decision of any viewer.
  • When the correlation in products’ qualities is high, all firms share the same preferences on media reports (i.e., every firm wants media to not refrain from disclosing any negative information about any product since such news would hurt the sales of its own product).
  • Pharmaceutical companies may also finance medical journals through “sponsored subscriptions” (Fugh-Berman et al., 2006).
  • Finally, the authors also analyze the role played by competition in the market for products on the accuracy of media reports.

3 The Model

  • Each firm may experience a negative shock in the quality of its product when the product is already in the marketplace (e.g., a defect).
  • Each consumer derives a positive utility ug from consuming a good quality product and (zero) utility ub from consuming a bad quality one.
  • That is, in this case ν would simply represent the prior probability of any product being a good quality one.
  • Since the media outlet’s report may be informative for her consumption decision, a consumer may decide to become informed before choosing a product.
  • Specifically, the authors first characterize the possible equilibria of the bargaining game between the media outlet and producers.

4 Advertisers’ competition and media outlet’s re-

  • In this section the authors analyze the bargaining sub–game.
  • Specifically, the authors discuss the preferences of potential advertisers over news reports and then analyze which signals the media outlet will find optimal to disclose to viewers in equilibrium.
  • Hence, the media 24Notice that, unlike the literature on informative advertising (e.g., Nelson, 1974; Butters, 1977; Grossman and Shapiro, 1984; Milgrom and Roberts, 1986; Dukes, 2004), in their model advertising does not convey or signal any information to viewers per se.
  • At the same time, its competitors may benefit from the disclosure of such negative news depending on the structure of the correlation among the negative shocks in products’ qualities in a specific industry.
  • Then, the authors present the general propositions for the case where firms face correlated shock in the quality of their products.

4.1 Benchmark: Uncorrelated products

  • In order to develop the basic intuition behind the general model, this section focuses on the case where the negative shocks in products’ qualities are uncorrelated (ql are i.i.d.).
  • The authors first describe the equilibrium in the simplest case where there are only two potential advertisers (i.e., l1 and l2) competing in the products market.
  • Then the authors generalize and prove the result for the case of an arbitrary number of producers.
  • 25As an analogy, the authors may think of this framework as if the media outlet was selling tickets (entry costs) to bad quality firms (i.e. firms whose product the media outlet discovered being of bad quality) in order to access the α-market share of informed consumers.
  • On the other hand, the media outlet could also sell a ticket to “good” quality firms (i.e. firms whose product the media outlet did not find being to be of bad quality) to restrict the bad quality firms to access this α-market share of informed consumers.

4.1.2 Multiple producers

  • As in the duopoly case studied above, when producers face uncorrelated shocks in their products’ quality they will end up having conflicting preferences over news reports.
  • Thus the results of the duopoly case easily extend to the case of an arbitrary number of producers.
  • The proof follows from the general result given below in Proposition 2. Result 2 Let D∗ ≤.
  • When not all firms are found to have a bad quality product, the media outlet will always end up being paid by “good” producers to disclose all the information.
  • Anticipating this, the media outlet could ask to such firm an advertising fee equal to the profits of the entire α-market share of informed consumers.

4.2 Correlated products

  • This section analyzes the media outlet’s equilibrium news reports when firms face correlated shocks in the quality of their products.
  • This general correlation structure is meant to capture the possible similarities among products’ characteristics.
  • Different producers may use common inputs in their production and thus a defect in a common input may result in all of them ending up with a bad quality product.
  • This common shock was due to the fact that all three cars were produced at a joint venture factory.
  • As before, the authors first develop the basic intuition by presenting a formal analysis of the simplest case where there are only two potential advertisers (i.e., l1 and l2) competing in the products market.

4.2.2 Multiple Producers

  • At the same, the authors also generalize the results of section 4.1.2 to the case where firms face correlated shocks in the quality of their products.
  • Let P and Q be two discrete probability distributions on L products (with the same expectation (1− ν)).
  • Indeed, while everyday the authors observe negative reports released by media on defects or problems on a specific product of a single car manufacturer, there seems to be much less disclosure regarding the effects of pollution on global warming (Oreskes, 2004; Boykoff and Boykoff, 2004; Boykoff, 2007; Germano and Meier, 2010).
  • Hence, empirical studies aiming at testing the influence of advertisers of media contents should take into account that media are more likely to accurately report news on issues where competing producers have conflicting preferences.

5 Media outlet’s reports and equilibrium viewership

  • The authors can now turn to the analysis of the endogenous media outlet’s viewership (i.e., the equilibrium fraction of informed consumers) given the Nash equilibrium of the bargaining game between the media outlet and potential advertisers characterized in the previous section.
  • In turn this implies that the equilibrium fraction of informed consumers (and hence the media outlet’s equilibrium profits) is a decreasing function of ρ.
  • Nevertheless, informed consumers would still not find the news reports of the media outlet credible and thus they would simply disregard them.
  • Specifically, even when the media outlet is reporting all its information, i.e., Bθ = 1, when ρ increases “no news” on product l become relatively less “good news” on that product.
  • Similarly, since the expected informativeness of media reports is increasing in the probability of detecting a bad quality product and also in the amount of information that the media outlet is willing to disclose, the expected fraction of informed consumers is also increasing in θ and D̄.

6 Competition in the market for products and news

  • This section analyses the role of competition in the market for products on the media outlet’s news reports.
  • The first condition ensures that a randomly drawn product has the same probability of experiencing a negative shock in either scenario.
  • Thus, the expected value of being uninformed remains constant when increasing the number of firms competing in the products market.
  • Intuitively, an increase in the number of producers leads to an (at least proportional) increase in D̄ if and only if the maximum amount of bad news that informed consumers would “tolerate” without deciding to not consume any of the products offered by the firms increases (at least proportionally).
  • That is, an increase in competition in the market for products translates to higher accuracy of news reports if and only if the negative effect on informed consumers’ beliefs (due to observing an additional bad signal) is offset by the positive effect due to the higher overall level of information.

7.1 Media outlet’s private info

  • All observe z) would affect their results on the equilibrium news reports of the media outlet (i.e., accuracy).the authors.
  • Suppose that firm l observes only the signal on its own product, zl.
  • Therefore, by hiding any information from producers, the media outlet would simply restrict the set of contracts it could offer to them, since such contracts must be contingent on the vector of messages delivered and messages are hard information.
  • The intuition behind this result is simple.
  • Hence, since the higher the number of bad signal observed, the higher the “bargaining power” of the media outlet with respect to producers, the media outlet always has an incentive to disclose all of its signals to potential advertisers so it can maximize the adverting fees it can impose on them.

7.2 Multiple Media Outlets

  • This section discusses the robustness of their results to the presence of multiple media outlets (i.e., N = 2).
  • That is, by assuming that both media outlets have the same information, it is possible to study whether media pluralism by itself changes the informativeness of news reports.
  • 32This scenario is, for example, consistent with the empirical evidence found by Swinnen et al. (2005) regarding the case of the media coverage of the food dioxin crisis in 1999 in Belgium.
  • Instead, introducing competition in the market for news has a positive effect on the profits of “good” producers.
  • Specifically, a firm producing a good quality product (or whose product media outlets have not discovered to be of bad quality), only needs to pay one of the media outlets to reveal the negative information about its rival’s product.

8 Conclusions

  • Consumers typically watch media for their entertainment and informational value.
  • Such informational value also involves information regarding consumer products.
  • Moreover, the analysis shows that the effect of competition in the market for products on the accuracy of news reports is not univocal.
  • Specifically, when advertisers’ products are uncorrelated, a higher degree of competition in the market for products is always associated with a higher accuracy of media outlet’s reports.
  • More generally, their analysis suggests that “commercial media bias” represents a serious concern in presence of a high degree of correlation among advertisers’ products.

Did you find this useful? Give us your feedback

Citations
More filters
Journal ArticleDOI
TL;DR: This paper developed an objective measure of the tone of climate change coverage by creating an index that builds on Gentzkow and Shapiro (2010), using phrase frequency analysis to compare newspaper text with the UN's IPCC reports and the Heartland Institute's skeptical response.

7 citations

Journal ArticleDOI
Tom Hamami1
TL;DR: In this article, the authors construct a theoretical framework for expert product reviews and demonstrate how the existence of positive network effects can make review inflation profitable even when fully rational consumers understand the existence bias, and they find that review inflation is heterogeneous across genres that vary by the extent to which they produce network externalities.
Abstract: I construct a theoretical framework for expert product reviews and demonstrate how the existence of positive network effects can make review inflation profitable even when fully rational consumers understand the existence of bias. This finding moreover suggests that product reviews, in addition to transmitting information, may also serve as a coordination mechanism for early adopters. Empirical application to video game review data suggests that this industry is in an inflation equilibrium. Specifically, I find evidence that reviews are inflated for games produced by large firms and for those that are part of pre-existing game franchises. Additionally, I find that review inflation is heterogeneous across genres that vary by the extent to which they produce network externalities, and I argue that this result is inconsistent with alternative explanations of review inflation.

2 citations

Journal ArticleDOI
24 Apr 2017
TL;DR: In this article, the authors analyze the strategic interaction between a new good producer and a remanufacturer who use negative advertising on television to compete for a greater share of the market for a particular good.
Abstract: In this paper we analyze the strategic interaction between a new good producer and a remanufacturer who use negative advertising on television (TV) to compete for a greater share of the market for a particular good. Government regulations limit the total amount of negative advertising time either firm can buy. The two rival firms choose how much negative advertising time to buy simultaneously. Our analysis of this duopolistic interaction leads to four results. First, we provide the normal form representation of the game between the new good producer and the remanufacturer. Second, we specify the best response functions of the two firms. Third, we determine the pure strategy Nash equilibrium of the game under study and point out that this equilibrium is unique. Finally, we ascertain the amount of negative advertising time the two firms would buy if they could come to a binding agreement to curtail this kind of advertising.

2 citations

Journal ArticleDOI
TL;DR: In this article, the authors explore the potential media bias in reviews of pop-rock and jazz albums released internationally between 2003 and 2015, published in two major Italian music magazines, and find that the reviews of "female" albums consist of fewer words than the "male" albums, but the difference is significant only for a magazine.
Abstract: The music industry presents a strong gender disparity in all genres and roles (composers, musicians, conductors). The reasons for the disparity discussed in the socio-economic literature regard genetic diversity, socio-cultural differences, and gender discrimination. Discrimination can be aggravated by the negative attitude of the mass media towards the women involved in the music industry. This paper explores the potential media bias in 2022 reviews of pop-rock and jazz albums released internationally between 2003 and 2015, published in two major Italian music magazines. The empirical analysis shows that the reviews of “female” albums consist of fewer words than the “male” albums, but the difference is significant only for a magazine. Within each magazine, the data also reveal two weak qualitative biases (though not significant): the reviews are more positive if no woman appears among the artists and, if the reviewer is a woman, the attitude towards the albums by female artists is, on average, worse.

1 citations

Journal ArticleDOI
TL;DR: In this article , a comprehensive dataset with coded reports from both public and private media outlets between 1998 and 2012 and estimate the tonality of the coverage using logit models was analyzed.
Abstract: ABSTRACT In this paper, we empirically examine German media reports about politicians with regard to gender differences in the reporting. We analyze a comprehensive dataset with coded reports from both public and private media outlets between 1998 and 2012 and estimate the tonality of the coverage using logit models. Overall, we find a more or less balanced reporting with only small differences in the reporting about male and female politicians. An analysis of gender differences by the five largest political parties reveals some interesting results as women in the conservative parties are more likely to receive a positive media coverage than their fellow male party members. On the contrary, women in the Left Party are more likely to receive a negative media coverage. As the results are statistically significant but small in magnitude, we conclude that there is no substantial indication of a gender bias in German Media, although there are some interesting differences by political parties.
References
More filters
Book
01 Jan 1957
TL;DR: Downs presents a rational calculus of voting that has inspired much of the later work on voting and turnout as discussed by the authors, particularly significant was his conclusion that a rational voter should almost never bother to vote.
Abstract: Downs presents a rational calculus of voting that has inspired much of the later work on voting and turnout. Particularly significant was his conclusion that a rational voter should almost never bother to vote. This conclusion, especially as elaborated on by Riker and Ordeshook (1968) has shifted the attention of modern political scientists from explaining why people don't vote to explaining why they do.

14,677 citations

Journal ArticleDOI
TL;DR: In this article, a notion of "favorableness" of news is introduced, characterized, and applied to four simple models: the arrival of good news about a firm's prospects always causes its share price to rise, more favorable evidence about an agent's effort leads the principal to pay a larger bonus, buyers expect that any product information withheld by a salesman is unfavorable to his product, and bidders figure that low bids by their competitors signal a low value for the object being sold.
Abstract: This is an article about modeling methods in information economics. A notion of "favorableness" of news is introduced, characterized, and applied to four simple models. In the equilibria of these models, (1) the arrival of good news about a firm's prospects always causes its share price to rise, (2) more favorable evidence about an agent's effort leads the principal to pay a larger bonus, (3) buyers expect that any product information withheld by a salesman is unfavorable to his product, and (4) bidders figure that low bids by their competitors signal a low value for the object being sold.

3,092 citations

Journal ArticleDOI
TL;DR: In this paper, the major features of the behavior of advertising can be explained by advertising's information function, and it is shown that the most important information conveyed by advertising is simply that the brand advertises.
Abstract: This paper tries to show how the major features of the behavior of advertising can be explained by advertising's information function. For search qualities advertising provides direct information about the characteristics of a brand. For experience qualities the most important information conveyed by advertising is simply that the brand advertises. This contrast in advertising by these qualities leads to significant differences in its behavior. How does advertising provide information to the consumer? The producer in his advertising is not interested directly in providing information for consumers. He is interested in selling more of his product. Subject to a few constraints, the advertising message says anything the seller of a brand wishes. A mechanism is required to make the selling job of advertising generate information to the consumer. [Авторский текст]

3,065 citations

Journal ArticleDOI
TL;DR: In this article, the authors survey recent theoretical work on two-sided markets and the main questions are (i) what determines which side of the market is subsidized (if either) in order to attract the other side, and (ii) is the resulting outcome socially e¢cient?
Abstract: There are many examples of markets involving two groups of participants who need to interact via intermediaries. Moreover, these intermediaries usually have to compete for business from both groups. Examples include academic publishing (where journals facilitate the interaction between authors and readers), advertising in media markets (where newspapers or TV channels enable adverts from producers to reach consumers), payment systems (where credit cards can be a convenient method of transaction between consumers and retailers), and telecommunications networks (where networks are used to provide links between callers and those who receive calls). The paper surveys recent theoretical work on these two-sided markets. The main questions are (i) what determines which side of the market is subsidized (if either) in order to attract the other side, and (ii) is the resulting outcome socially e¢cient?

2,331 citations

Journal ArticleDOI
TL;DR: This paper presented a signaling model based on the ideas of Phillip Nelson, in which both the introductory price and the level of directly "uninformative" advertising or other dissipative marketing expenditures are choice variables and may be used as signals for the initially unobservable quality of a newly introduced experience good repeat purchases play a crucial role in their model.
Abstract: We present a signaling model, based on ideas of Phillip Nelson, in which both the introductory price and the level of directly "uninformative" advertising or other dissipative marketing expenditures are choice variables and may be used as signals for the initially unobservable quality of a newly introduced experience good Repeat purchases play a crucial role in our model A second focus of the paper is on illustrating an approach to refining the set of equilibria in signalling games with multiple potential signals

2,268 citations

Frequently Asked Questions (2)
Q1. What contributions have the authors mentioned in the paper "Paying positive to go negative: advertisers' competition and media reports" ?

This paper analyzes a two-sided market for news where advertisers may pay a media outlet to conceal negative information about the quality of their own product ( paying positive to avoid negative ) and/or to disclose negative information about the quality of their competitors ’ products ( paying positive to go negative ). The authors show that whether advertisers have negative consequences on the accuracy of news reports or not ultimately depends on the extent of correlation among advertisers ’ products. Specifically, the lower the correlation among the qualities of the advertisers ’ products, the ( weakly ) higher the accuracy of the media outlet ’ reports. Moreover, when advertisers ’ products are correlated, a higher degree of competition in the market of the advertisers ’ products may decrease the accuracy of the media outlet ’ s reports. 

Finally, while the analysis has focused on a symmetric setting to isolate the model from ad-hoc 30 effects, future research should probably explore the role of asymmetries among advertisers.