TY  - JOUR
AU  - Gentzkow,Matthew
TI  - Valuing New Goods in a Model with Complementarities: Online Newspapers
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12562
PY  - 2006
Y2  - October 2006
UR  - http://www.nber.org/papers/w12562
L1  - http://www.nber.org/papers/w12562.pdf
N1  - Author contact info:
Matthew Gentzkow
University of Chicago
Booth School of Business
5807 South Woodlawn Avenue
Chicago, IL 60637
Tel: 773/834-2177
Fax: 773/702-0458
E-Mail: gentzkow@chicagobooth.edu
AB  - Many important economic questions hinge on the extent to which new goods either crowd out or complement consumption of existing products. Recent methods for studying new goods are based on demand models that rule out complementarity by assumption, so their applicability to these questions has been limited. I develop a new model that relaxes this restriction, and use it to study the specific case of competition between print and online newspapers. Using new micro data from the Washington DC market, I show that the major print and online papers appear to be strong complements in the raw data, but that this is an artifact of unobserved consumer heterogeneity. I estimate that the online paper reduced print readership by 27,000 per day, at a cost of $5.5 million per year in lost print profits. I find that online news has provided substantial welfare benefits to consumers and that charging positive online prices is unlikely to substantially increase firm profits.
ER  -