News aggregators and competition among newspapers on the internet

Abstract

This paper studies how news aggregators affect the 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 newspapers choose their quality on each issue. Our model captures well the main trade- off between the "businessstealing" effect and the "readership- expansion" effect. We find that the aggregator increases the quality only if the readership- expansion effect is large enough relative to the business- stealing effect. Using a condition obtained from empirical results, we find that the aggregator increases the quality and social welfare, but affects newspapers' profits ambiguously.