MEDIA MERGERS AND MEDIA BIAS WITH RATIONAL CONSUMERS

TLDR

Media owners combine political and profit motives to influence public opinion by withholding unfavorable information, and even rational consumers cannot detect such bias because they lack knowledge of the news organizations’ information holdings, making competition the only remedy that can counteract the negative effects of media mergers. The study develops an economic model of media bias and media mergers and derives a distinct policy motive for regulating media mergers beyond conventional antitrust. The authors construct an economic model that captures how media bias and mergers affect public information and incentives. The model shows that competition can mitigate media bias, yet media mergers can defeat competition and lead to severe negative consequences for the public even when bias reduces merger incentives.

Abstract

We present an economic model of media bias and media mergers. Media owners have political motives as well as profit motives, and can influence public opinion by withholding information that is pejorative to their political agenda—provided that their agenda is not too far from the political mainstream. This is true even with rational consumers who understand the media owners' biases, because the public do not know how much information the news organizations have and so do not know when news is being withheld. In line with conventional wisdom, this problem can be undone by competition; but competition can be defeated in equilibrium by media mergers that enhance profits at the expense of the public interest. We thus derive a motive for media merger policy that is completely distinct from the motives behind conventional antitrust. While media bias may reduce the profit incentives to merge, media markets nonetheless err by being insufficiently competitive, and the consequences of merger are more severe than in other markets.