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Abstract:
The principal objective of this extended essay is to assess why sales of The Australian newspaper have failed to increase significantly despite a substantial reduction in its price. During April 1998 The Australian newspaper announced that it would slash its cover price from 90c to 40c in Melbourne. This was intended to increase sales figures for The Australian and to provide greater competition for its main rival newspaper, The Age. This price cut captured my attention because of the nature of the newspaper market in Melbourne and the way game theory operates oligopolistic markets. ... The interviewees were asked specifically what determines their choice of newspaper and such factors as the size, price and content were raised. ... K drastically reduced the price of The Times newspaper. ... The experience with The Australian newspaper was however in stark contrast with the experience in the U. ...
My research addressed the reasons why the sales of The Australian newspaper failed to increase significantly despite a large reduction in its price.
ECONOMICS EXTENDED ESSAY:
THE NATURE OF COMPETITION IN AUSTRALIA・S NEWSPAPER INDUSTRY. ...
INTRODUCTION
The newspaper industry in Melbourne, Australia is a prime example of how ．game theory・ operates in an oligopolistic market. During April 1998, The Australian newspaper slashed their cover price by more than half in an attempt to dramatically increase their market share. This price cut was not as unexpected as one might think, as only months prior, News Corporation (the proprietors of The Australian) were successful in a similar pricing strategy in the UK newspaper market. I decided to investigate the results of this pricing strategy in Melbourne, and hypothesized that the Australian・s circulation would increase substantially. ... To do this I undertook a cross-sectional survey, inquiring as to the consumers・ newspaper buying behaviour, and analyzed the demand elasticities of the commodities. My research has been focused on the competition between The Australian and its nearest substitute, The Age.
It is generally believed that one of News Corporations major objectives in cutting the Australian・s cover price, as well as to increase its market share, was to decrease The Age・s readership below a certain point, thereby leading to decreased revenue from its most profitable source, namely the Classifieds. If News Corporation had succeeded in reducing The Age・s circulation to below two hundred thousand units a day, and were able to maintain this for a reasonable amount of time, Fairfax (the proprietors of the Age) would have be forced to cut the price of classifieds, thereby substantially reducing its profit. ... The full extent of The Australian・s price cut did not become evident until late in 1998 and early in 1999 where at one stage the circulation figures of The Age decreased to almost 190,000 units a day, more than ten thousand less than before the price cut. ... This temporary increase may have been attributed to The Age・s relaunch with a revamped design and promotional campaign. ...
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BACKGROUND
Melbourne Newspaper Market:
The Melbourne newspaper market consists of four major newspapers. The Australian Financial Review, which is a business oriented newspaper and caters to a relatively specialised readership. Melbourne・s tabloid newspaper The Herald-Sun, which is owned by News Corporation, and is Melbourne・s highest selling newspaper, selling around 560,000 units per day on average . ... The Australian is a national newspaper which focuses mainly on Australia-wide news and sport, as opposed to state wide issues. ... Melbourne・s, The Age, is the second highest selling newspaper selling around 205,000 units on average per day , while the Australian is selling around 131,000 units per day. ... The Melbourne newspaper industry is effectively an Oligopoly as it has: substantial barriers to entry; few dominant firms; and, interdependance of actions.
Firms in an oligopoly have four major solutions to maximize their market share: outright price competition; price rigidity with firms turning to non-price competition; one firm accepting the role of price leader in the market; and strong incentives for firms to collude, via cartels or mergers. With reference to Melbourne・s newspaper market, both price competition and non-price competition have occurred, whilst mergers have taken place in past.
During April 1998 The Australian newspaper announced that it would slash its cover price in Victoria from 90c to 40c and The Weekend Australian form $1. ... To lessen the effects of lost revenue, due to the price cuts in Victoria, The Australian had increased its cover price by 10c elsewhere in Australia. ... Murdoch, the principal share holder of News Corporation, considered the turnover of England・s fourth national broad sheet, The Daily Telegraph, (a direct competitor with The Times) and stated ．if it can move over a million units a day, why can・t The Times? ... K that the ．public・s choice of newspaper had everything to do with habit and nothing to do with price・, News Corporation decided to put this theory to the test. ... Hypothetically if the Age was to charge fifty cents per unit, it is conceivable that・s its circulation would increase. ... The grid shows the possible outcomes for the varying newspaper prices.
In the case of the Australian newspaper industry, game theory can be related to the decisions being made by each company. For example, The Australian decided to cut its price to increase sales by trying to impinge on The Age・s market share.
Approximate Word count = 4567
Approximate Pages = 18.3
(250 words per page double spaced)
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