Competing for the Public Through the News Media

Abstract

Interest groups seek to influence economic activity through public and private politics. Public politics takes place in the arenas of public institutions, whereas private politics takes place outside public institutions often in the arena of public sentiment. Private politics refers to action by interest groups directed at private parties, as in the case of an activist group launching a campaign against a firm. This paper presents a model of informational competition between an activist and an industry, where each interest group seeks to influence public sentiment and does so by advocating its position through the news media. Citizen consumers make both a private consumption decision and a collective choice on the regulation of a product that has an externality associated with it. In the absence of the news organization the collective choice in not to regulate. The activist and the industry obtain private, hard information on the seriousness of the externality and advocate favorable information and may conceal unfavorable information. The news media can conduct investigative journalism to obtain its own information and based on that information and the information it has received from its sources, provides a news report to the public. Due to its role in society, the media has an incentive to bias its report, and the direction of bias is toward regulation. Its bias serves to mitigate both the market failure by decreasing demand and a government failure by leading to regulation. The activist then has an incentive to conceal information unfavorable to its interests, whereas the industry fully reveals its information.