The newspaper industry is widely seen as unsustainable. Not only are online ads popularly thought to be inherently cheaper than those in print, the internet has also made the advertising market more competitive, driving down rates.
But research by Matthew Gentzkow, Richard O. Ryan Professor of Economics and Neubauer Family Faculty Fellow, challenges the prevailing view that this means less revenue to pay for quality journalism. The price advertisers pay for the amount of time people actually see an ad—the price of attention—can, in fact, be higher online than offline. The web gives advertisers more ways to reach customers, which creates competition and lowers ad rates, but it also allows advertisers to target readers more efficiently, which tends to raise online ad prices. Above is a simple model that illustrates this tradeoff.
Learn more about this model in another article from this issue, "Breaking news: Online ads can support good journalism."