Wednesday, July 28, 2010
Posted by D. Daniel Sokol
Aaron Cranes and Charles J. Romeo, both Economic Analysis Group US Department of Justice Antitrust Division, provide A Theory of Quality Competition in Newspaper Joint Operating Agreements.
ABSTRACT: Newspaper Joint Operating Agreements (JOAs) are long term, inflexible contracts between metropolitan daily newspapers in the same market. These contracts maintain two editorial voices while combining all business operations of the two competitors in order to capture many of the scale economies that have put an end to newspaper competition in most markets. The question we address is what, if anything, drives newspapers to compete editorially once a JOA is formed? With contract terms that run in the 10s of years, one might reasonably question whether incentives exist to prod the partners to continue rigorous competition. Our study of JOA contracts indicates that the history of JOAs is filled with instances of unprogrammed renegotiations, and that how the partners fare in these negotiations appears to be driven by each party’s relative success in the market since the agreement was initiated. In essence, forming a JOA does not resolve the issue of which newspaper will remain in the marketplace once the JOA terminates. Editorial competition throughout the life of the JOA resolves this issue.