Perspectiva do Global Journal of Commerce & Management
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ISSN: 2319-7285


Market Failure: The Odd Economics of Free News

Steven C. Tarr*

The free news market has failed. Why do consumers tolerate low quality news while they do not tolerate low quality cars? This research examines that question through an extension of economic principles, consumer and supplier behavior, information asymmetry, technology, and unique aspects of price and quality. Amidst a glut of dubious information driven by social media, websites, and news outlets, this paper provides an economic framework about modern news deficiencies. High speed production and consumption of facts and opinions overwhelm the individual’s cognitive processing limits. Similar to Gresham’s law, bad information drives out good. If consumers perceive news is free and quality is questionable, then consumer and social economic benefit is zero. All economic benefit goes to the supplier and the free market under performs. Seven factors drive this: One, technology enables fast cheap distribution such as television, websites, or social media; two, existing laws protect distributors from content liability, like section 230 in the United States; three, factual information is costly and its value fades quickly in the 24 hour news cycle; four, opinions have legal protection and facts do not; five, consumers perceive news is free due to supplier secondary payment mechanisms; six, consumers cannot process the immense volume of news which is subject to newly defined Masherg’s law. And seven, suppliers develop sophisticated quality definitions for themselves and consumers, far beyond the knowledge and resources of a consumer to know their own quality definition. These seven factors have converged, resulting in market failure for free news.

Classification codes: JEL B55: Social economics; D18: Consumer protection; E71: Role and effects of psychological, emotional, social, and cognitive factors on the macro economy; D82: Asymmetric and private information; D83: Search, learning, information and knowledge, communication, belief, unawareness; L15: Information and product quality.