Free daily newspapers: too many incentives to print?

TLDR

A free daily newspaper balances distributing news to readers and selling ad space, with private information about its readership, and its strategy depends on whether readers are plentiful and seeking or lacking and avoiding. The newspaper over‑prints to credibly signal to advertisers that there are plentiful and seeking readers. When readers are plentiful and seeking, the newspaper prints too many copies; when readers are lacking and avoiding, it prints the socially optimal number.

Abstract

We consider a model in which a free daily newspaper distributes news to readers and sells ad-space to advertisers, having private information about its readership. Depending on the type of readers in the market, the newspaper's may have a and audience or a and avoiding audience. We find that if the readers are plentiful and seeking, the newspaper prints an excessive number of copies. The rationale for this over-printing strategy lies on the newspaper's need to send a credible signal to the advertisers that there are plentiful and seeking readers in the market. When the readers are lacking and avoiding, the newspaper chooses the socially optimal tirage (does not try to cheat the advertisers).