IS ONLINE NEWS AN INFERIOR GOOD?

IS ONLINE NEWS AN INFERIOR GOOD?

EXAMINING THE ECONOMIC NATURE OF ONLINE NEWS AMONG USERS

By Professor Hsiang Iris Chyi and PhD student Mengchieh Jacie Yang

Published in JOURNALISM & MASS COMMUNICATION QUARTERLY

Introduction: With the unprecedented emergence of the Internet as a powerful news medium, fears of the dinosaur's fate have been dominating print medium since the late 1990s. (Nguyen, A. 2003) In U.S.A the number of people getting news online has been growing while print circulation of news paper keeps dropping. Thats why, Many people beleive that future of news is online.

But evidence suggests print newspapers still account for more than 90% of total newspaper revenue and users do not perceive online news favorably. They prefer print newspaper to online news.  

To better understand the user’s response to online news, this study goes beyond descriptive research and takes a theory-driven, inter-disciplinary approach. The goal is to explore the economic concept of “inferior goods” and its applicability to the consumption of online news.

Inferior Goods: In microeconomics Terms, when income increases, the demand for an inferior good decreases; when income decreases, the demand for an inferior good increases, other things being equal. whether a product is an inferior good is determined by the relationship between income and demand, not by the quality of the good. But on the other hand,“Normal goods,” are characterized by a positive relationship between income and demand. When income increases, the demand for normal goods also increases.

To determine whether a good is an inferior/normal good, the relationship between income and demand must be measured by the income elasticity of demand, which is calculated as the percentage change in quantity demanded divided by the percentage change in income. When the income elasticity of demand for a good is negative, the good is an inferior good.

For example, macaroni and cheese, Ramen noodles, potatoes, rice, and bus travel ticket are inferior goods. Therefore, inferior goods often are perceived as of lesser quality when compared with alternatives that are normal goods.

One rare example of inferior goods cited in a media economics textbook is the black-and-white TV set. In the early 1970s, an increase in income would have contributed to poor families replacing their black-and-white televisions with the color receiver, bringing a decline in demand for black-and-white TV sets. But most media products are assumed to be normal goods. A recent article in the New York Times discussed a 9% decline in DVD sales in the third quarter of 2008 in the context of the economic crisis negatively affecting consumer income.

In communication research, the Theoretical Framework Principle of Relative Constancy proposed by McCombs in the 1970s states that total media expenditures by consumers and advertisers will increase or decrease proportionally according to national income. This theory assumes that aggregate income and media consumption are positively correlated.

This study ( Study of Professor Hsiang Iris Chyi and PhD student Mengchieh Jacie Yang) tested hypothesis, which states: As income increases, the consumption of online news decreases, other things being equal.

H1: When income increases, online news use decreases—controlling for demographics (gender, age, education) and news interest.

H2: When income increases, online news use decreases—controlling for demographics (gender, age, education),news interest, and other news media use (newspaper, TV news, and radio news).

Methodology: Data used in this study were collected by the Pew Research Center for the People and the Press, a U.S.-based non-profit organization conducting regular national surveys on public use of and attitudes toward online and traditional news media. The Pew Research Center releases survey data six months after its reports are issued and makes the data available to scholars for research purposes.The dataset used in this study is from the Biennial Media Consumption Survey conducted from April 19 to May 12, 2004.

 Sampling was based on standard list-assisted random digital dialing (RDD), ensuring an equal chance for every phone number to be included. The overall sample size is 3,000.

Online news use was measured by asking those who spent time reading news online yesterday this question:

About how much time did you spend reading news online yesterday?

(1) Less than five minutes

(2) Five to less than ten minutes

(3) Ten to less than fifteen minutes

(4) Fifteen to less than twenty minutes

(5) Twenty to less than thirty minutes

(6) Thirty minutes to less than one hour

(7) One hour or more

(8) Don’t know/Refused

Income was measured by pre-tax total family income from all sources. Control variables include gender,age, education, news interest,45 and other news media use.

After analysis H1 and H2 are supported. It suggesting that online news is an inferior good. To move one step further, the analysis explored the relationship between income and print newspaper use whether an increase in income would increase or decrease print newspaper use, other things being equal.

Discussion

This analysis, based on data collected by the Pew Research Center in 2004, identified a negative relationship between income and online news consumption: When income increases, online news use decreases; when income decreases, online news use increases, other things (demographics, news interest, and/or other news media use) being equal—suggesting that online news is an inferior good among users. In contrast, the print newspaper is a normal good.

Such findings, at first glance, may surprise media scholars as well as online news professionals. After all, in communication research, no news products have been labeled as inferior goods before. In addition, major U.S. media companies have invested heavily in their online ventures, offering an array of interactive features and multimedia content—most of which are unattainable by print newspapers. It is therefore difficult to understand why online news could be an inferior good. Yet, from an economic perspective, “goods are what are thought of as goods.” Any product’s economic nature is determined by consumer perception and response. Based on this particular data set, which consists of survey responses collected from a national sample of online news users by a major polling institution in 2004, online news is an inferior good among users.

The finding carries important theoretical and practical implications.

when examining the relationship between traditional and new media offerings, media scholars should take into account the economic nature of individual products. Because many readers use the online and print versions of newspapers simultaneously, a number of scholars conclude that online and print newspapers are complementary goods.

But This study suggests that they complement each other not as two normal goods but as a combination of an inferior good and a normal good.

APPLICATIONS FOR IRAN:

We can apply above method in Iranian society also for answering the  question: IS ONLINE NEWS AN INFERIOR GOOD IN IRAN ? At the same time we can try give a answer to a follow-up question: WHAT MAKES ONLINE NEWS AN INFRERION GOOD.  

  Reference: Nguyen, A. (2003). The current status and potential development of online news consumption: a structural approach. First Monday, 8(9). Retrieved 29 March, 2006 from http://www.firstmonday.org/issues/issue8_9/nguyen/.