News Aggregators and Competition Among Newspapers on the Internet

Résumé

We study how the presence of a news aggregator affects quality choices of newspapers competing on the Internet. To provide a microfoundation for the role of the aggregator, we build a model of multiple issues where each newspaper chooses quality on each issue. This model captures the "business-stealing effect" and the "readership expansion effect" of the aggregator. We find that the presence of the aggregator leads newspapers to specialize in news coverage, changes quality choices from strategic substitutes to strategic complements and is likely to increase the quality of newspapers and social welfare, with an ambiguous effect on newspapers’ profits.