Can you invest in a trend?
14 Dec 2014 Leave a comment
in entrepreneurship, financial economics, industrial organisation, survivor principle Tags: creative destruction, efficient market hypothesis, market selection, survivor principle, The meaning of competition
Is there media bias?
20 Mar 2014 2 Comments
in industrial organisation, market efficiency, organisational economics, survivor principle Tags: Armen Alchian, competition, george stigler, media bias, survivor principle
A leading characteristic of media bias is that people agree on its existence, but disagree on its manifestation.
The print media is under dire threats to its existence at the moment. A newspaper that ignores what its readers want does so only at great peril.
Armen Alchian and George Stigler both argued that realised profits are the criterion by which the market process selects survivors: those who realise positive profits survive and will grow their market share; those who suffer losses will eventually disappear unless they improve themselves. The surviving media outlets will be those firms that anticipated or adapted fastest to the current and future demands of their readers and viewers.
Any media bias is likely to be slightly to the centre-left for the following reasons:
- Young women tend to be one of the most marginal groups of news consumers (i.e., they are the most willing to switch to activities besides reading or watching the news).
- Young women often make more of the consumption decisions for the household so advertisers will pay more to reach this group.
- Since young women tend to be more centre-left, on average, a news outlet may want to slant its coverage that way. Media sell space to advertisers and tailor the way they cover politics to gain more readers and viewers.
Puglisi and Snyder found that:
- Using endorsements of state-level initiatives and referendums, newspapers are located almost exactly with the median voter – the average voter – in their home states.
- Newspapers are moderate relative to interest groups and political parties.
- Although newspapers exhibit some variation in their ideological position, they tend to be much closer to the median voter than most interest groups.
- Newspapers appear to be more liberal than voters on social and cultural issues such as gay marriage, but tend to be more conservative on economic issues such as the minimum wage.
- On average, the news and editorial sections have almost identical partisan positions.
Positive profits accrue to media outlets that are better at serving their readers and viewers than their competitors. Their lesser rivals will lose money, exhaust their retained earnings and fail to attract further investor support.
There is no best practice on measuring media bias. The literature is too young. Milton Friedman put up robustness as his test. Hit the hypothesis with as many tests as possible with many different data sets.
Most studies using many different data sets and methodologies suggest that the media reflects the politics of the market they serve. Newspapers and TV stations are big businesses, and they increased readership, ratings and revenue by presenting factual and informative news with a dose of ‘infotainment’.
Competition forces news media outlets, just like any other firm, to cater to their customers’ preferences. Why did anyone think the media industry was any different from any other?
Utopia, you are standing in it! 
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