Price Elasticity: Supply and Demand

This is an article on changes to newspaper prices and their causes by the McKinsey Quarterly (2005). Newspapers have had a lot of competition from new or modern media such the internet or television. These media not only make news interesting as a resort of video that integrates voice and images, but they are also cheaper when compared to the newspaper medium itself. Some of the non-price determinants of supply and demand include the cost of similar goods, tastes and preferences, technology, and input costs. All these in some way affect the supply or demand of a newspaper thereby affecting the number of people who buy it and the price it goes for. The article mentions the growth of the internet or broadband penetration as one of the contributors to the decline of sales for newspapers. Additionally, the presence of free commuter tabloids that are related goods but under a different price (lower) provides reasons for the shift in sales volume.

Demand is directly related to the supply as can be seen from the graph. With increase for demand, the supply increases. This is the same for the supply since it increases with increasing demand. The intersection point for demand curve number one marks the quantity at which the supply meets the demand and hence it is the equilibrium point. At this quantity (Q₁), the price of the product is (P₁). For the demand curve number two, the quantity of the supply is higher than that in one and the price is higher. The higher the demand price, the lower the supply and the higher the supply price, the lower the demand.

Due to the growth in the internet as well as devices that can easily access it, information access was made easy. The internet allows anyone to be a reporter that can be seen in social websites such as facebook and twitter. Since these people have first hand information and are mostly the ones who are affected by such activities, they can be relied upon to give some relatively accurate accounts of the happenings in the news or those that grab the world’s attention. Therefore, reliance on the more expensive form of news media such as the newspapers has been reduced through the emergence of these media channels.

Print media may also not be as up to date as the other updates that run on the internet thereby prompting people to be reliant more on the internet than the print media. Additionally, the internet is accessible all the time and is therefore not limited by the time factor unlike the print media that is not always accessible as it may be limited by the fact that it has to be transported mechanically. The internet also may provide instant feedback as opposed to the print media where feedback is slow and enquiries may not be replied to due to limitations of space and resources.

Due to increase in an alternative that was favored by the consumers, the demand for the newspapers fell. As a result, the suppliers tried to reduce the price to induce increases in demand. Additionally, they converted their highly resource demanding newspapers into tabloid style newspapers that would not demand as much paper and resources. The change generally increased readership as the newspaper captured another niche ion the market that had not been tapped. The youth and women bought the papers by associating tabloid like newspapers with entertaining news rather than serious. However, the newspapers also lost some readership in older men who thought the newspaper could not be relied upon for accurate and reliable news.

Those papers that did not change their format had to compete against those that had changed formats into sleeker less resource intensive papers. Therefore, these papers could afford to lessen their prices though at the expense of some amount of quality. Some commuter tabloids were even free thereby upping the competition although they were relatively lower in quality to the newspapers being sold at older, higher prices. Therefore, most of the newspapers were forced to change from broadsheets into tabloids.

The change in style of the newspapers affected the sales and the price at which the newspapers were being sold. Due to the lower demand on resources, the newspapers were cheaper to produce and hence the lower the prices at which they were sold. However, there was a negative effect as well since the newspaper received less advertisement offers due to the reduced space and the reduction in overall quality of the newspapers. This is a similar feeling to the older men who had been the main customers of the newspapers while they were still broadsheets. These cost saving efforts therefore, may have had little in the way of improving readership and revenue since the primary source of revenue for the newspapers is in advertisement.

Through the proper adjustment for these changes in the supply demand environment, the newspapers would be able to survive their decreasing market and they may even survive the changes healthily.

References

The McKinsey Quarterly. Can The Tabloid Format Save Newspapers? February 15, 2010. 2005, Feb 2 <http://www.forbes.com/2005/02/22/0222mckinsey.html>