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The Price of Silence: Media Competition, Capture, and Electoral Accountability

Thu, August 29, 2:00 to 3:30pm, Hilton, Cardozo

Abstract

A free media has been seen as a powerful guarantor of political accountability, both theoretically (e.g. Besley 2006) and empirically (e.g. Ferraz and Finan 2008, Snyder and Stromberg 2010). However, the media may be powerful enough to determine an electoral outcome and to promote a bad candidate, even when voters are fully rational (Prat 2014, Anderson and McLaren 2012, Enikolopov et al. 2011). As a consequence, an incumbent politician may be interested in controlling what media outlets report, to present a positive image to voters and to stay in power. This paper looks at the effect of competition in influencing the incentives towards media capture, with novel results.
The current literature stresses the positive effect of competition on media freedom: increasing the number of outlets means that the bad politician has more publishers to deal with, so capture is more costly. However, there is a more subtle effect, because the competitive pressure decreases profits, and firms with smaller financial margins may be more willing to sacrifice editorial independence for political money. Hence, they are cheaper to capture.
Overall, the direction of this trade off is not trivial: the ``positive'' view of the role of competition in deterring capture can be questioned if more competition means smaller (and financially weaker) media outlets, less able to inform the public opinion and to resist to political pressure. Media outlets may be more numerous, but are they freer? Under some conditions, more competition can actually harm the media's independence from political influence, as the empirical section of this paper suggests. This highlights the need for a deeper understanding of the forces behind this trade off.
This paper makes two contributions: on the empirical side, it is the first to analyse the effect of competition on media freedom from political influence in an identified way, showing novel results. On the theoretical side, the model provides an explanation for the counter-intuitive empirical results, showing that potential risks to media independence from the political power are high not only when competition is too little, but also when it is too much. Moreover, the model highlights that the standard ``positive'' result of competition and capture relies on restrictive assumptions about voters' behaviour and media outlets' profits. From a policy perspective, both the empirics and the theory stress the risk, in terms of editorial independence, of excessive competition in the media sector.
More specifically, the theoretical model is a natural extension of the seminal contribution by Besley and Prat (2006). It shows that, relaxing some of the assumptions in a fairly natural way, high competition is actually bad for media freedom, as the cost of media capture is driven to zero as the number of outlets goes to infinity. Moreover, the relationship can be non-monotonic, overall, meaning that media capture occurs when competition is either very weak or very strong. Intuitively, increasing the number of media outlets can make capture overall more expensive for the politician, as long as the number of outlets that need to be silenced increases in the same way, and the politician pays monopoly profits to every captured outlet. But competition has a decreasing effect on the influence that each individual outlet has on voters: basically, with more competition every outlet is able to inform a smaller fraction of the electorate. In fact, even established media outlets have limits in their ability to inform voters, as the recent spreading of fake news highlights. Hence, when there are enough outlets, the politician may be willing to allow for some free media outlets, since they will not be powerful enough to change electoral outcomes. This decreases the profits that captured outlet would make by rejecting the bribe from the politician, hence they are cheaper.
The overall effect of this trade off induced by competition (more outlets to be silenced, but each of them is cheaper) depends on the relationship between readership and profits. When it is convex (e.g. because the media market is modelled as a two sided one) then high competition makes capture cheaper, overall.
The empirical section of this paper suggests that high competition in the mass media market reduces media freedom from political influence. The identification strategy exploits the staggered digitalization of terrestrial television in Europe: a technological change that allowed for a more efficient use of the spectrum and, hence, for the entry of new players in the market. In an event study analysis, this paper shows that higher digitalization (and hence higher competition) reduces the freedom of the media from political influence precisely in countries with high level of pre-treatment competition, suggesting that media capture is easier in those places.

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