Traditional competition policy seeks to limit market power, or its exercise, in order to increase economic welfare. Competition is good - a goal of policy - because it may lead to lower prices, better products, and greater combined surplus of consumers and firms.
These goals apply to media industries like any others, and media are subject to standard antitrust and regulatory standards. Yet regulation of media in the United States and around the world has been profoundly shaped by an additional proposition: that media competition promotes truth, and therefore contributes to the health of democracy.
This idea, already current in colonial America, has been called “one of the earliest and most influential contributions to First Amendment doctrine.” The Federal Communication Commission calls it “one of the basic tenets of our national communications policy.” Allusions to it appear in at least 126 US Supreme Court opinions and at least 87 policy documents of the Federal Communications Commission. The Supreme Court has held that “the widest possible dissemination of information from diverse and antagonistic sources is essential to the welfare of the public” (Associate Press v. United States 1945).
While the proposition that competitive media are more likely to produce socially valuable information has an excellent pedigree, it is far from obvious. Many people have argued that increased competition in the digital era has led to cutbacks in reporting and editorial quality. Firms such as the BBC that are insulated from traditional product market competition are sometimes viewed as especially informative, and competitive private media are often accused of favoring celebrity gossip, car chases, and other stories of dubious social value. Authors such as Cass Sunstein have pointed out that too much competition and variety online may contribute to political polarization, as consumers can self-segregate into “echo chambers” where their own ideological prejudices are reinforced.
What does economics have to say? In recent years, many economists have worked to flesh out the effects of media competition both theoretically and empirically. This work has clarified the foundations of the traditional argument in favor of competition, the ways in which competition can also be problematic, and the cases in which each is most likely to occur.
In this article, I provide a flavor of the lessons from this literature in the form of two concrete arguments, one in favor of competition and one (potentially) opposed. The discussion suggests a broader lesson: whether competition will be beneficial or harmful will often hinge on whether the distortions or bias we are concerned about are ultimately driven by the supply-side or the demand-side of the market.
Competition and Independence
The press was protected so that it could bare the secrets of government and inform the people. Only a free and unrestrained press can effectively expose deception in government.
Hugo Black, New York Times Co. v. United States (403 U.S. 713 [1971])
In mid-April, 2004, CBS News received a dossier of photos and videos graphically detailing detainee abuse by American soldiers in Iraq’s Abu Ghraib prison. This was both an enormously valuable scoop for CBS and a revelation with potentially devastating political and military implications. Aware that CBS had this information, the chairman of the Joint Chiefs of Staff personally called CBS anchor Dan Rather to ask him to suppress the photos and videos, at least temporarily. He gave a variety of reasons, including the effect the information would have on the safety of American hostages. Rather agreed and the planned broadcast was postponed.
A somewhat similar sequence of events had taken place several decades earlier when the New York Times began printing excerpts from an internal government history of the Vietnam War commonly known as the “Pentagon Papers.” The Nixon administration viewed these papers as potentially damaging to national security. The day after the first story appeared, the Justice Department sent a telegram instructing the Times to cease publication and, through separate communication, threatened legal action. When the Times continued publishing the papers, the government went to court and obtained an injunction to halt their publication.
The oldest and most frequently discussed objection to handing control of the media to a small number of firms is that those firms will be captured by the government. Even in countries where the press is protected by strong constitutional guarantees of independence, the state has many levers by which to influence it. In the case of CBS, a phone call was sufficient to delay broadcast of the Abu Ghraib photographs. To suppress the Pentagon Papers, the Nixon administration used legal action premised on its special powers in the domain of national security. Control of access to reporters and regulatory powers provide additional levers.
How can competition prevent government capture of the media? For one thing, it increases the range of incentives that exists in the market. Suppose that the government threatens to stop returning calls from any firm that reports a particular damaging story. Suppose that both the cost of this lost access and the benefit from reporting the story vary across firms. (The costs might differ because different firms have different levels of initial access; the benefits might differ because of variation in the tastes of consumers or the premium owners put on public service.) Suppose, finally, that if at least one firm reports the story it will be widely rebroadcast and all consumers will learn about it. In this case, the more firms there are in the market, the more likely that at least one of them will have a benefit to reporting that exceeds the cost of government retaliation and the story will be exposed.
The strategic interactions among firms provide additional checks on capture. First, once one firm reports the story, the value to the government of preventing any other firm from reporting it disappears. This means the government cannot bribe some firms but not others. Second, the more firms have been convinced to suppress the story, the greater is the value to any other firm of refusing and reporting it, because they would potentially have an exclusive and a scandal that would damage their competitors. If the story is to be completely suppressed, each firm must be given enough incentive to pass up the opportunity to be the one heroic outlet that reported it.
We can see these forces play out in the resolution of the Pentagon Papers case. The New York Times had originally obtained the documents from an MIT researcher named Daniel Ellsberg. When Ellsberg learned of the injunction against the Times, he contacted the three major television networks and offered them the documents. All three refused to make them public, presumably fearing similar legal action. Ellsberg then offered the documents to the Washington Post, which agreed to publish them. Thus, no sooner had the administration succeeded in silencing the Times, than the Post picked up printing where it had left off. Eventually, the government pursued legal action against both papers which ended with the Supreme Court’s decision in New York Times Co. v. United States (403 U.S. 713 [1971]) and the quotation from Hugo Black at the start of this section, upholding the papers’ right to publish.
Both of the strategic checks are readily apparent in these events. First, as soon as some piece of information was published by at least one paper, the government’s incentives to suppress further publication were dramatically weakened. This was made clear during oral arguments for New York Times Co. v. United States in the following exchange between one of the Supreme Court justices and the government counsel:
Question: To the extent anything has been published and has already been revealed, the United States is not seeking an injunction against further publication of that particular item?
Solicitor General: No, Mr. Justice. I think at that point we would agree that it becomes futile. It is useless.
Second, the fact that the Times had been barred from publishing increased the Post’s returns to printing the story. As long as the Times could publish, the Post was reduced to “[rewriting] stories that appeared in the Times, crediting the competition with their original publication,” as Publisher Katherine Graham wrote in her autobiography. Once the Times was muzzled, the Post had both an exclusive story and a chance to be seen as a solitary defender of press freedom. Graham called the story “the graduation of the Post into the highest ranks.” She recalled: “One of our unspoken goals was to get the world to refer to the Post and the New York Times in the same breath . . . After the Pentagon Papers, they did.”
That CBS’s 60 Minutes finally broadcast the photos and videos from Abu Ghraib on April 28, 2004, is also due in large part to competitive forces. Three full weeks after CBS first obtained the information, they learned that investigative reporter Seymour Hersh had also obtained copies of some of the photos and that they would be published in an upcoming issue of the New Yorker. Although we do not have detailed documentation on the decision-making process within CBS, Dan Rather made clear to viewers that competition was instrumental in causing the broadcast to go forward: “Two weeks ago, we received an appeal from the Defense Department... to delay this broadcast given the danger and tension on the ground in Iraq. We decided to honor that request. . . This week, with the photos beginning to circulate elsewhere and with other journalists about to publish their versions of the story, the Defense Department agreed to cooperate in our report.”
Competition and Demand-Driven Bias
It is so difficult to draw a clear line of separation between the abuse and the wholesome use of the press, that as yet we have found it better to trust the public judgment, rather than the magistrate, with the discrimination between truth and falsehood. And hitherto the public judgment has performed that office with wonderful correctness.
Thomas Jefferson, 1803
We can think of government capture as a distortion originating on the “supply-side” of the market. Broadly speaking, competition is effective in reducing this kind of distortion because competition makes it more costly for firms to deviate from the kind of content that consumers want. Competition produces truth because we assume that consumers value truth more than falsehood or suppression. This argument suggests that the benefits of competition will be less clear when distortions in news markets are driven by the demands of consumers themselves.
Why might consumers demand distorted news? A leading case is that they may prefer news that is consistent with their own ideological beliefs or prejudices. It is a robust fact that conservatives gravitate toward news with a (relatively) conservative slant, and liberals gravitate toward news with a (relatively) liberal slant. Work in both psychology and economics has identified a range of explanations for this phenomenon, both rational and irrational.
How does competition affect the revelation of truth when this kind of distortion is present? The answer depends critically on why consumers prefer like-minded information sources. Suppose a left-wing news outlet chooses not to report an important fact – say evidence of corruption by a Democratic politician – because this fact would conflict with the prior beliefs of its target readers. Suppose that a competing news outlet reports the evidence and points out that its competitor had suppressed it. How will learning this change the left-leaning consumers’ willingness to pay for the first outlet?
At one extreme, suppose that consumers consciously trade off accuracy of a news source against a preference for information that is likely to confirm their beliefs. They want to learn the truth, but will choose a less accurate source or one that avoids reporting certain kinds of facts in order to avoid having their personal beliefs challenged. In this case, consumers who watch the left-wing news station do so because it will avoid reporting facts like the corruption of a Democratic politician. That a competitor highlights this will not change their willingness to pay, and the firm’s profits should not suffer as a result.
This description probably captures some kinds of distortions, especially to the extent that the taste for confirmatory information is partly about a desire to be entertained. Readers of liberal magazines may enjoy the fact that they present many negative stories about Republicans and few negative stories about Democrats. An exposé by a competitor about the magazine’s unbalanced reporting may not harm its reputation. If Rush Limbaugh devotes a great deal of time to skewering Democrats but ignores misdeeds by Republicans, he may not be punished. Nobody really expects a balanced perspective from a late-night comedian like David Letterman or Jon Stewart. That this kind of “slant” is designed partly for entertainment by no means suggests that it cannot cause real distortions in consumers’ beliefs.
Competition will be relatively ineffective in disciplining this kind of bias. Of course, having more sources of information available may lead consumers’ beliefs to be somewhat closer to the truth if consumers are exposed to them. If Rush Limbaugh was the only source of information, right-wing viewers would probably have much more distorted beliefs than if they also watched CNN from time to time. But competition from CNN would be unlikely to lead Rush Limbaugh to moderate his own content.
At the other extreme, suppose that consumers choose like-minded sources because they sincerely believe that they are more accurate. A large body of evidence in psychology shows that subjects tend to remember evidence better, and rate its quality more highly, when it supports their prior beliefs. With respect to direct ratings of news sources, consumers around the world rate the quality of news outlets whose slant matches their own views to be higher on a number of dimensions. This outcome could occur because of information-processing heuristics, coarse thinking, or a rational process of trying to learn which sources are accurate.
To the extent that confirmatory preferences are driven by a desire for accuracy, competition will be more effective in disciplining bias. A monopoly firm will prefer to distort information or suppress important facts to convince consumers that it is high quality. In the presence of competitors, however, firms run the risk that such inaccuracies will be exposed and that consumers’ assessments of their quality will fall as a result.
Numerous examples show that news firms pay a high price when they are shown clearly to have distorted information. For example, the exposure of fraudulent reporting by the reporter Jayson Blair at the New York Times caused a major scandal that led top editors Howell Raines and Gerald M. Boyd to resign. Similarly, when a CBS News report on George W. Bush’s National Guard service was shown to be based on fraudulent documents, the segment producer, Senior Vice President of CBS News, and Executive Producer were all fired or asked to resign. Anchor Dan Rather resigned several months after the broadcast.
A more precise understanding of the way competition affects firms’ incentives to slant the news will require knowing more about what drives confirmatory preferences in specific situations. Anecdotal evidence strongly suggests that competition will be effective in preventing firms from catering to consumers through outright distortions or omission of major facts. It is less clear how competition will operate in cases where distortions takes the form of subtle “spin,” are harder to expose definitively, or are intended mainly to entertain. Finally, the gains to increased market discipline must be compared to the potential costs of consumer self-segregation. Convincing empirical analysis of these different forces remains an important subject for future research.
This article is a condensed version of “Competition and Truth in the Market for News” by Matthew Gentzkow and Jesse M. Shaprio.
Information about the author, Professor Matthew Gentzkow:
The preceding is re-published on TAP with permission by its author, Professor Matthew Gentzkow, and by the Toulouse Network for Information Technology (TNIT). “Competition Policy and the Media” was originally published in TNIT’s December 2015 newsletter.