Microeconomic Analysis of the London Newspaper Market

Microeconomic Analysis of the London Newspaper Market

Contents

1. Historical overview (question 1)......................................................3

2. Price elasticity and cross elasticity of demand (question 2)…………..3

3. From oligopoly to monopoly, firm performance (question 3)……….5

4. Barriers to entry and business strategies for other companies

(question 4)…………………………………………………………………………………...6

5. Bibliography…………………………………………………………………………………..8

6. Appendix 1…………………………………………………………………………………….9

1. Historical overview (question 1).

The UK newspaper industry has been dominated by national newspapers, all of which are edited in London. There have been several interesting movements in the newspapers market which have led to the today's situation. Associated Newspapers Ltd (Daily Mail) was launched in 1905 and is subsidized by the Daily Mail and General Trust plc. In 1999 the DMGT became the 9th media group holding a place in the London stock market's list of to 100 (SOURCE). It has 19% of a market share.

The London Evening Standard the one paid-for evening paper was established in 1980 by merger of the Standard and Evening News. In 1987 Robert Maxwell launched London Daily News. Associated News responded by re-launching the Evening News cutting the cover price by half which squeezed Maxwell out of the market the year after. This was the trick so the Evening News was then closed. There was another competitor, the free sheet Tonight, which closed in 1984 with the life less than a year. It was reported that Rupert Murdoch (who controlled News International) had plans to set a free evening paper long before 1999. But Associated News managed to do it first by launching Metro in 1999. In its first 5 years the daily readership was over 1m which made Metro the UK's 4th largest daily paper (after The Sun, the Daily Mail, the Daily Mirror). In march 2010 prints are reported as 1.3m copies daily read by 3.5 people. DMGT used the same tactics as against Maxwell and launched the London Lite to protect the Standard and the Metro. However, it didn't work and DMGT had to sell the Standard to Alexander Lebedev in January 2009. The Standard was re-launched by Geordie Greig in May 2009 and was renamed the London Evening Standard. In October 2009 Lebedev became free newspaper being published with supplements of London Jobs, Homes & Property and celebrity features (Maforum.com, September 2010). Today's free newspapers market consists of three free newspapers: the Metro and the City AM which are the morning papers and the London Evening Standard which is published daily for people coming home from work in evenings.

2. Price elasticity and cross elasticity of demand (question 2).

Price elasticity of demand (PED) is a ratio which shows the dependability of demand on a price. In other words, it displays the responsiveness of demand variation to the changes in price. If this ratio (the absolute value of the ratio) is less than 1, the PED is said to be inelastic, which indicates not really high correlation between demand and the price variation. If PED (its absolute value) is more than 1, the relationship between price and demand is said to be elastic which means demand is highly responsive to price variations. The PED could be low in short run but it could be seen that the price has an impact on demand in the long run, which should be considered by the firm when changing the price.

In case of the London Evening Standard, which cut its price from 50p to zero, the PED could be examined using the ‘circulation' figures as a ‘quantity demanded'. The ‘readership' figures could also be used but ‘readership' can appear to be not a true number and it also does not indicate the company's expenditure on the production.

For the short run:

Circulation

September 2009 October 2009

256229 427310

(ABC, November 2010)

PED = ?Q/?P * P/Q = 0.0667/1 = 0.0667 < 1 ? inelastic

For the long run:

Circulation