The economic advantage of being the voice of the majority

In this paper, we analyze price competition in a duopolistic newspaper industry, where politically di¤erentiated newspapers compete in two distinct markets: circulation and advertising. We scrutinize the "theory of circulation spiral". This theory argues that the two-sided structure of the newspaper industry creates positive bidirectional cross-network externalities between readers and advertisers, which generate an endogenous demand-side mechanism that favours the larger newspaper in detriment of the smaller one. The problem of survival of the minority’s newspaper is addressed within a game-theoretical framework. In the context of a two-stage game, we show that the minority’s newspaper is only evicted in the presence of strong circulation spiral e¤ects. However, when the minority’s newspaper survives, the newspaper that gives rise to the voice of the majority, always has a superior economic performance (in terms of circulation as well as advertising revenues).