GCOE Discussion Paper Series
Global COE Program

Human Behavior and Socioeconomic Dynamics
Discussion Paper No.150

Resale Price Maintenance by Japanese Newspapers

David Flath

September 2010

GCOE Secretariat
Graduate School of Economics

OSAKA UNIVERSITY

1-7 Machikaneyama, Toyonaka, Osaka, 560-0043, Japan

August 30, 2010

Resale Price Maintenance by Japanese Newspapers
David Flath*Institute of Social and Economic Research, Osaka University
abstract
In Japan, newspapers enjoy a special exemption from antimonopoly prohibitions
against resale price maintenance (suppliers’ stipulations that bar downstream
firms from price discounting), but are each required to set uniform prices
throughout Japan. In fact, the newspapers have rarely changed their subscription
prices in recent years, and the three leading national dailies, together accounting
for about half the total industry circulation, and thirteen other papers accounting
for another one eighth of industry circulation, all have set exactly the same price(3,925 yen per month). The remaining local papers all set lower prices. The
authorized resale price maintenance, and prohibition against prices that vary
geographically, have allowed collusive price increases that I here estimate to bearound 500 yen per month, entailing economic waste of about 300-billion yen($3-billion) per year but adding only around 16-billion yen per year to newspaper
profit. The increased profit margin on subscriptions is much offset by reduced
sale of ads.

JEL codes: D4,L4
Keywords: resale price maintenance, two-sided markets, newspapers, advertising*Institute of Social and Economic Research
Osaka University
6-1 Mihogaoka, Ibaraki
Osaka 567-0047
JAPAN
Tel: 81-(0)6-6879-8569
E-mail: flath@iser.osaka-u.ac.jp
This research is supported by Japan Society for the Promotion of Science, Grant-in-Aid for
Scientific Research (C), grant no. 22530227.

Resale Price Maintenance by Japanese Newspapers
1. Introduction.
In Japan, newspapers enjoy a special exemption from antimonopoly prohibitions against resale
price maintenance (suppliers’ stipulations that bar downstream firms from price discounting), but
are each required to set uniform prices throughout Japan. The national dailies, and thirteen of
the leading regional and local dailies, have exploited this antitrust exemption to maintaincollusive subscription fees. This has benefitted the other local dailies and may have promoted
improvements in content, but has wastefully diverted resources away from the newspaper
business and towards other less valued activities. I estimate this waste to be in the neighborhoodof 300-billion yen per year (about $3-billion per year). I further calculate that increasing thesubscription price has only enriched the colluding newspapers by around 16-billion yen per year.
The enlarged profit margin on subscriptions that comes from raising the price is largely
dissipated in reduced sales of advertising. This is an unusual cartel indeed.

The waste it

imposes is nearly twenty times greater than the added profit it collects.
Collusive price-setting by Japan’s leading newspapers imposes economic waste vastly out of
proportion to the added profit it confers for two reasons. First, the newspapers are horizontallydifferentiated. They would each exhibit a degree of market power even without colluding. I here
estimate the elasticity of demand facing the typical Japanese newspaper as 2.3. The papers thatseem to have colluded in setting a common price have, in my estimates, set that price about 15
percent higher than they would have done if acting independently. If in setting the common pricethey have maximized profit, then I infer that the elasticity of demand they face with respect toadjustments in that price must be around 2.0, lower than the 2.3 elasticity with respect toadjustments only in own price because of the positive cross elasticity of demand among thecolluding papers. The cross elasticities are small. The newspapers gain something by colluding
but not much.
The second reason why the collusive profit is small relative to the economic waste is that thenewspapers sell advertising as well as subscriptions. I estimate the elasticity of demand foradvertising in any Japanese newspaper as 3.5. Because selling advertising is profitable and thedemand for advertising is proportionate to newspaper circulation, the newspapers tend to set
lower subscription prices than they would if not selling ads. But this means that the loss in1

consumer surplus from rasing the subscription price is relatively great because the price increase
is applied to a large circulation and because the induced constriction of circulation reduces theconsumer surplus of advertisers as well as subscribers. Before describing the analysis andestimates on which these inferences are based, I shall first describe some relevant features of theJapanese newspaper industry and its pricing practices.

2. The Japanese Newspaper Industry.
Japan has five national news dailies (Mainichi, Asahi, Yomiuri, Nikkei and Sankei), a coupleof large circulation regional papers (Chunichi Shimbun, Hokkaido Shimbun), and another 40 or
50 newspapers that mainly serve a single prefecture or city. The Nikkei, often compared with
the Wall Street Journal, features business and financial news. Sankei Shimbun is similar to
Nikkei. The other three national dailies, Yomiuri, Mainichi, and Asahi, together account for
about half the total circulation of all newspapers. The total circulation of news dailies (notincluding sports dailies, tabloids, or political newspapers) in Japan is about 85 percent of thenumber of households and more than 95 percent of sales are by monthly subscription rather thansingle-issue. Figure 1 shows the market shares of the national papers, regional papers and local
papers in each prefecture, in 2007. It is evident that the local papers gain larger shares in the lesspopulous prefectures.
The newspaper publishers distribute through independent newsdealers.

The typicalarrangement entails an exclusive geographic territory assigned by the newspaper company, dailypurchase of a number of copies, the number being set by the newspaper company, and resale ata price stipulated by the newspaper –exclusive territory, stipulated resale price and a sales quota.
That the newspapers enforce sales quotas, which would violate antimonopoly proscriptions, iswidely denied by the newspaper companies but is evidently a fact. The newspapers that areshipped and billed to the distributors, and unwanted by them, are referred to as oshigami–literally“push papers”. Documentation of this practice can be found in the Wikipedia entry for “shinbun
hanbai ten” (newspaper sellers in Japan). It is also usual and expected that the distributors will
be paid by advertisers to include inserts in the papers they distribute. Most newsdealers distributeonly one newspaper. The newspaper companies also contract with independent operators besides
the newsdealers to solicit new subscriptions.
The Japanese newspapers, and other publishers, enjoy a special exemption from antimonopoly

2prohibitions against resale price maintenance (Antimonopoly, Section 23-2 (4)). The exemption
dates from the 1953 amendments to the 1947 Antimonopoly Law. Newspaper publishers arealso bound by a special directive of the Japan Fair Trade Commission enjoining against charging
differing prices according to the area or person buying (most recently “Specific Unfair Trade
Practices in the Newspaper Business”, Fair Trade Commission Notification, no. 9, July 21, 1999,
amending the similar earlier notification no. 14, 1964). The directive also disallows discountpricing by newspaper distributors, and disallows the newspaper publishers from imposing
minimum quantities (sales quotas) on distributors, though apparently as already stated the
publishers do this anyway. Under the special directive, each newspaper is free to set its own
price but must then charge that same price wherever the newspaper is sold. Different editionsof the newspaper may command differing prices. At least since 1945 and probably before that,the three leading national dailies Yomiuri, Asahi and Mainichi, have all set the same subscription
price as one another and changed that price at roughly the same time as one another. Pricechanges are infrequent. The last price change was in 2003, seven years ago. Since then amonthly subscription to any of them is 3,925 yen (around $40). The Japan Newspaper
Association has publicly supported the continuation of the special antitrust exemption allowing
newspapers to maintain retail prices and indeed forestalled the adoption of a proposal in 2001
to repeal it.
Why resale price maintenance? A quick –and I think wrong– answer is that the retail pricestipulation is actually a maximum retail price and is to prevent the independent distributors from
exploiting the local monopolies that their exclusive territories confer. By raising the price toincrease its own profit a distributor would actually diminish the total profit in the supply chain,
the successive monopoly problem. Those who are familiar with US antitrust law will recall the
Albrecht case1 in which Herald Publishing Company, publisher of the St. Louis Globe Democrat,
was found by the U. S. Supreme Court to have violated prohibitions against resale pricemaintenance in an apparent attempt to deter exactly this sort of overpricing. The resale pricemaintenance of Japanese newspapers is different because the sales quotas that the newspapers
impose on the distributors deter the distributors from raising prices. The sales quotas are set atlevels that not only deter overpricing but that also encourage solicitation of new subscriptions.
Because of this, the stipulated retail prices are binding downward; they are price floors, not price1

Albrecht v., Herald Co., 390 U.S. 145 (1968).
3

ceilings. A simple explanation is that the resale price maintenance is part of a cartel scheme
among the newspaper companies.
Examples of resale price maintenance as a producer cartel scheme have been noted
empirically and explored theoretically. We have the Telser (1960) discussion of the light bulb
case. In the early twentieth century, duopolists Westinghouse and GE sold light bulbs throughexclusive independent retail outlets and both stipulated the same minimum resale prices. In
Telser’s explanation, retail price discounting could be more easily detected and deterred than
could wholesale price discounting, and exclusive dealing prevented retailers’ profiting from any
secret wholesale price discounts that were not passed on as retail price discounts. In Flath (1989)
I suggested that a producer cartel scheme was the likely motive for resale price maintenance by
the three producers of infant powdered milk in Japan, as documented in a series of antimonopoly
cases, from the 1960s and 1970s. Jullien and Rey (2007) develop an algebraic model in which
resale price maintenance facilitates collusion among producers because it makes deviations fromthe collusive scheme easier for the colluders to detect and credibly deter, as explained by Telser.
This seems to me to be the essence of the Japanese newspaper cartel too.
Another collusive practice of the Japanese newspaper industry is the newspaper holiday. On
one particular Monday each month, the newspapers all refrain from issuing a morning andevening edition. The Japan Newspaper association defends this practice as needed to give thenewspaper distributors vacation days. This is absurd. By rotating work shifts or deploying
substitute workers newsdealers could permit vacations. The newspaper holidays amount to acollusive restriction of industry output, for both distributors and publishers. The fact that thenewspaper holidays of the different papers are on the same days is evidence of collusion among
the newspaper companies. A rare instance of deviation is also revealing. In February 2002, theSankei Shimbun refrained from the practice of newspaper holiday. The other papers publicly
criticized Sankei but also themselves refrained from holidays. Three months later the practice
was reinstated, again with Sankei participating. That deviation by Sankei triggered deviations
by the others strongly suggests that the newspaper holidays have the character of a prisoners’
dilemma, as is generally true of cartel schemes.
My aim is to assess the actual increase in prices that can be attributed to collusive behavior
by the leading Japanese newspapers, and determine also the likely effects of those price increases
on profits, consumer surplus and newspaper content. I begin by laying out a simple algebraic

4

framework for interpreting data on newspaper prices, circulation, advertising and content. Muchof this will be familiar to students of newspaper economics. Similar models have been sketchedin Rosse (1970), Blair and Romano (1993), Van Cayseele and Vanormelingen (2009), andelsewhere. Here I adapt the framework for analysis of the Japanese newspaper industry.

3. Basic Framework.
Let us suppose that the demand for ads “a” depends on the price to place an ad per subscriber“pa/s” and that the readers regard the ads indifferently. Here an ad is defined as a printed item
supplied to all subscribers, the same as the subscription content k. The only difference is that thead is paid for by the advertiser but the other content is paid for by the subscribers. To keep
matters simple, posit a constant elasticity demand system facing the newspaper:s= A ps-îs kè
a= B (pa/s)-îa ,where îs >1, îa >1, and 0<è<1. Specifying the demand for advertising in this way does rule outsome interesting cases. For example, it disallows cases in which demand for advertising depends
not only on circulation but also on newspaper content that targets specific types of readers. These
cases are usefully explored by Chandra and Collard-Wexler (2008). The data on Japanesenewspapers that I analyze here unfortunately does not allow investigation of reader targeting andits effects.
Let the cost of newspaper production depend on number of ads and circulation and on amountof content. These costs include first-copy costs faa+fkk, and costs that depend on number ofcopies c0s+c̄as+c̄ks:
Cost = faa + c0s + c̄as + fkk + c̄ks .
Here, c0 is the unit cost of distribution (net of advertisers’ payments to distributors for including
inserts), c̄ is the cost per page of actually printing the newspaper (where k are the number ofpages of content and “a” the pages of ads), fk is the first-copy cost of producing a page of content
and fa is the first-copy cost of producing a page of advertising. Notice that because of the termc̄as in the cost function, the costs are not separable into cost of subscription and cost ofadvertising. This makes it problematic to speak separately of the profits from subscriptions andfrom advertising.
The incremental costs cs , ca , and ck of supplying subscriptions, ads and content are the5following:cs / MCost/Ms = c0+c̄a+c̄kca / MCost/Ma = fa+c̄s
ck / MCost/Mk = fk+c̄s
The newspaper chooses content, price of ads, and price of subscriptions to maximize total profit:max ð(ps,pa) = pss +paa !faa ! c̄as ! fkk ! c̄ks ! c0s
ps,pa,kThe necessary conditions for maximum profit reduce to the following pricing rules2:(pa-ca)/pa =1/îa

(ps-cs)/ps =1/îs ! paa /pss .

Profit-maximizing also requires that content k, the number of pages not including ads, fulfills
the condition:
fkk / pss = è/îs .
This expression resembles the Dorfman-Steiner condition describing optimal advertisingexpenditure. This is because, analytically, the model here is the same as the Dorfman-Steiner
advertising model: Demand for subscriptions has constant elasticity (0 < è <1) with respect tocontent, just as in the Dorfman-Steiner model demand for the product has constant elasticity withrespect to quantity of ads.
Rearranging in a useful way, the pricing and content rules are:pa = (fa+c̄s)(1!1/îa)-1
ps = (c0+c̄k+c̄a!paa/s)(1!1/îs)-1.
k = èpss / îsfk .
The subscription price ps is set as though the newspaper were receiving a subsidy per subscriber

2

The price-cost margin for subscriptions exemplifies the behavior of a multi-productmonopolist supplying two goods that are complements in demand. In general, where the demands are
as follows

Q1= A p1 î1 p2-î12
Q2= B p2-î2 p1î21,
and marginal costs are c1 and c2 , the profit-maximizing pricing rules are:
(p1 -c1 )/p1 = 1/î1 + ((p2 -c2 )/p2 ) (î21 /î1 ) (p2 Q2 / p1 Q1 )(p2 -c2 )/p2 = 1/î2 + ((p1 -c1 )/p1 ) (î12 /î2 ) (p1 Q1 / p2 Q2 ) .
See for example Tirole (1988, pp.69-71). But here the cross-elasticities of demand are:
î12 =Mln a/ Mln ps = !îaîs(=î1 î2 ), andî21 =Mln s/ Mln pa = 0.

6equal to the marginal profit that arises indirectly from advertising with each copy sold (for given
price of advertising pa):
(M(paa!faa!c̄as)/Ma)(Ma/Ms) + (M(paa!faa!c̄as)/Ms= (pa!fa!c̄s)(Ma/Ms) ! c̄a= (pa!fa!c̄s)pa îa /s ! c̄a= paa/s ! c̄a.

This marginal profit equals the marginal revenue that arises indirectly from advertising (=paa/s),
minus the added-cost-per-copy attributable to advertising (=c̄a).
The basic framework can be summarized in two sets of equations:(1) Givens:
Demand for subscriptions:
Demand for ads:
Cost function:s= A ps-îs kè
a= B (pa/s)-îa ,Cost = faa + c0s + c̄as + fsk + c̄ks .

(2) Implied by profit-maximization (pricing and content rules):Price of ads:
Price of subscriptions:Pages of content:pa = (fa+c̄s)(1!1/îa)-1
ps = (c0+c̄k+c̄a!paa/s)(1!1/îs)-1.
k = èpss / îsfkThe pricing and content rules do not depend directly on the parameters A and B that scale thedemands for ads and for subscriptions. With given values for the other parameters (fa, fs, fk, c0,c̄, è, îs ,and îa), the prices and content (pa, ps, and k) are determined by the number ofsubscriptions s and demand for ads a. My basic estimating strategy is to treat s and a as
exogenous. An admittedly better method would be to instrument s and a with correlates of thedemand shifters A and B, but data that would enable me to do this has so far eluded me. I boldly
plunge ahead with the data I have.

4. Estimates and Implications.
There are two different ways of estimating the parameters. One is to estimate the demand andcost functions directly. The other is to estimate the functions that describe the profit-maximizing
rules for choosing prices and content. The literature on newspaper economics includes examples
of both approaches. Van Cayseele and Vanormelingen (2009) estimate a pair of equations

7

describing the demand for ads and demand for subscriptions in Belgian newspapers.

The

demand for subscriptions is specified as nested logit, in which readers first choose between
subscription to the local paper versus a national one, and then choose within the one category or
the other. Demand for subscriptions depends on the characteristics of newspapers and of readers,and on the prices. Van Cayseele and Vanormelingen find that the elasticity of demand forsubscriptions îs ranges from 1.25 to 3.05. They estimate a demand for advertising directly andfind a price elasticity of îa.1.5. Argentesi and Filistrucchi (2007) estimate a nested logit
specification for reader demand and simple logit specification for advertising demand for Italys’
four national newspapers.

In their preferred specification the newspapers set ad rates

noncooperatively but collude in setting cover prices.
Rosse (1970) estimates a set of equations approximately like the three pricing and content
rules implied by profit-maximization, using data for local newspapers across the US. Rosse
allows for curvature of the cost function (which the simple model here does not exhibit), and also
allows demand for subscriptions to depend directly on amount of ads. He finds a price elasticity
of demand for subscriptions îs .1.4, taking into account the effect of change in subscription priceon amount of ads, as interpreted by Blair and Romano (1993). He also finds that price elasticity
of demand for advertising is îa.1.6. Rosse was the first to notice that variation in demand acrosscities could be exploited as a kind of natural experiment in measuring the effect of shifting
demand on the costs and pricing of local newspaper monopolists. As far as I am aware this same
principal has not yet been exploited in the study of Japan’s local newspapers.

4.1. Price of advertising.
Within the basic framework, much of the variation in price of advertising across local
newspapers can be related to variation in number of subscribers s. The price of ads (not per
subscriber) varies linearly with number of subscribers. Newspapers with smaller circulation, allelse the same, have lower ad prices:
dpa/ds = c̄(1!1/îa)-1 > 0 ,but higher ad prices per subscriber:d(pa/s)/ds = !fa (1!1/îa)-1 s-2 < 0.
It is possible that elasticity of demand for advertising varies from one newspaper to another. But
much of the actual variation in ad pricing across Japan’s local newspapers is linearly related to8number of subscribers, as implied by the model just described.
Table 1 reports OLS regressions in which newspaper ad pricing is a linear function of
circulation. There are four different prices, so four separate regressions. The dependent variablein the left-most regression of the table is the price for a legal notice posted in the society page per
1cm horizontal column (dan in Japanese). This is the basic plain-vanilla ad rate that is the anchor
for each newspaper’s menu of ad prices. The dependent variables in the other three Table 1
regressions are contract prices per horizontal column for black-and-white business display ads.
These vary depending on whether the contract is for one, five or fifteen horizontal columns,
within a six-month period. A page is divided into fifteen horizontal columns, so these are prices
for one-fifteenth page, one-third page or one page, cumulatively within the contract period (Theprice is the same for a full page ad as for fifteen one-column ads). The rate for ads smaller than
one horizontal column is the same as for a legal notice and is priced per horizontal column per
centimeter width. A (Yomiuri shimbun) page is 37.9 cm wide. A (perhaps typical) small ad
might amount to one half column (in other words 1/30th of a page), and so its price would be
18.95 x the price per column centimeter for a legal notice. The regressions use 2003 circulation
because 2003 was the year in which the prices were last changed; they have remained the samein the seven years since then. The unit of observation is the particular edition of each paper.
Some of the observations are for ads placed in more than one regional edition of a national
newspaper. For these I aggregated the circulation over the regional editions covered. With thoseobservations excluded, Chow tests favored the pooling of national and local papers. Chow tests
favored pooling of morning and evening editions even with those observations included. The
estimates reported in Table 1 are for the pooled sample. The R-squared is 0.75 for legal noticeand 0.85 to 0.90 for the business display ads. It seems that the basic framework adequately
describes the newspaper advertising cost function and the ad pricing behavior of newspapers.
That is the newspapers each face a similar elasticity of demand for advertising and have similar
first-copy costs of supplying advertising. The newspapers with greater circulation havecorrespondingly lower incremental costs and so set lower prices.

Picard (1998) notes anapproximately similar pattern in the advertising rates of U.S. newspapers.

4.2. Content.
For given parameters (è, îs, and fk), content k* is proportionate to revenue from subscriptions9

pss. That is: k* = èpss/îsfk . An implication of this basic framework is that newspapers that facea decline in demand for subscriptions will reduce content.
Subscription price per page of content ps/k* is proportionate to 1/s
ps/ k* = îsfk/ ès .
Notice that M ln(ps/k*) /Ms = !1, but this is not the elasticity of demand. It is a reduced form
relationship between s and ps/k* as other parameters shift. In fact, it is premised on constantelasticity of demand Ms /M ln ps / îs > 1. In the Argentesi and Filistrucchi (2007) estimates ofreader demand facing Italy’s four national newspapers the dependent variable is real price per
issue, which is something like price per page of content. Most of the variation arises from whichdays happened to include weekly supplements. They report, at the sample mean, the elasticityof reader demand with respect to variation in real price of around 0.75, not too different fromone, as would be implied by the logic just related. I have not so far been able to estimate è. My
conjecture is that it is rather small. Large circulation papers and small circulation papers bothhave about 15 to 20 pages of content per morning issue.

4.3. Price of subscriptions.
To analyze the effect of collusive price setting requires that we expand the basic framework
to show how the demands for subscription to each newspaper depend on the prices of rival
newspapers. For example write the demand for subscription to newspaper 1
s1= A1 ps1 îs1 kè ( psi-î1i
i 1where î1i (= Mln s1/ Mln pi)>0 is the cross-elasticity of demand for subscriptions among rivals.
Here stipulate that îs1 !3î1i > 1. In other words, the rival newspapers are substitutes in demand(î1i >0), and if their prices are the same, demand responds elastically to adjustment in theircommon price. Under the Japan Fair trade Commission special directive each newspaper isobliged to set geographically uniform prices but need not set the same price as rival newspapers.
Nikae (2010) usefully points out that the legally mandated geographic uniformity can itself leadto softer price competition. This is not part of my analysis. My focus here is on the collusive
setting of a common price.
Now the national newspapers in Japan (Yomiuri, Asahi, and Mainichi) do in fact all set thesame subscription price:
ps1=ps2=ps3=ps*
10

For these three, the demand each faces becomes
si= Ai ps*-îs1+î2i+î3i kè ( psiî1i , i=1,...,3 .
i 1,2,3

Among the three, each would want to set a higher common price ps* than the price it would
choose in the Bertrand equilibrium. But the one with lower incremental costs of subscriptions
or greater ad revenue per subscriber would want a lower common price than the others. Perhaps
the difference among the three in preferred common price is not so great, or perhaps they are able
to reach a consensus. Whichever of these is true, the common price is higher than the Bertrand
prices of each of them and this is the essence of resale price maintenance among the national
newspapers in Japan. The subscription prices of the colluding firms under the resale pricemaintenance regime are higher than they otherwise would be. Their non-colluding rivals enjoy
an increased demand as a result of the collusive price increase, but set the same Bertrand prices
as they would in the absence of collusion. The two bloc newspapers Chunichi Shimbun andHokkkaido Shimbun, and the other national paper Sankei Shimbun, all set the same 3,925 yen
per month subscription price as the big three national papers. So do eleven of the local
newspapers. That leaves seven local newspapers offering both morning and evening editions atlower subscription prices. The Shizuoka Shimbun is the largest circulation newspaper among
the seven with a subscription price below that of the national dailies. Its subscription price is
2,900 yen and its circulation tops 700,000.
Some descriptive statistics on newspapers are in Table 2. These are reported separately forthe various editions of the sixteen newspaper that are setting the same 3,925 yen per month priceof subscription, and for the local papers that are setting lower subscription prices. These are thedata I use to analyze subscription prices. The data sources are noted in Appendix 1.
My strategy is to estimate an equation explaining the subscription prices of the newspaper
companies that set prices below the 3,925 yen per month set by Yomiuri, Asahi, and Mainichi,
and then use that equation to predict out of sample the subscription prices of the others.
Comparison of the predicted prices and the actual ones measures the effect of the resale pricemaintenance collusion. The estimating equation comes from substituting the price-of-ads
equation, pa/s = (fa/s+c̄)(1!1/îa)-1, for pa/s in the subscription-pricing equation. I report theestimate of the resulting equation in Table 3 and also directly below the equation itself here:11ps = c0 (1!1/îs)-1 + c̄(1!1/îs)-1(k+a) ! c̄ (1!1/îa)-1(1!1/îs)-1 a! fa(1!1/îa)-1 (1!1/îs)-1 a/s.

ps

=

â0

ps

=

2,723 +

+ â1 (k+a)

+ â2

a

+ â3

a/s

0.5 (k+a)

- 0.7

a

- 103,929

a/s

(+434
if dualedition)standard error:t value:
one-sided p :R-square:
0.436

0.6
0.88
0.193

1.1
-0.6
0.276

62,873-1.65
0.054

Although the standard errors are large, the signs are as expected and the orders of magnitude of
the coefficients are sensible. From the estimate, the elasticity of demand for advertising iscomputed as îa = (1+â1/â2)!1 = (1!0.5/0.7)!1= 3.5. This seems about right, though higher thanthe corresponding estimate for Belgian newspapers (=1.5) reported by Van Cayseele and
Vanormelingen (2009).
For the price elasticity of demand for subscriptions we can use the slope coefficient from theadvertising price regression to make an inference. From the Table 1 regressions it seems that theslope for business display ads is around 0.4 = Mpa/Ms = c̄(1!1/îa)-1, so for îa=3.5 we havec̄.0.4/1.4=0.29 from which we infer îs= (1!c̄/â1)!1 = 2.3.
The equation estimate in the text box (the same as in Table 3) is used to predict subscription
prices for the out-of-sample newspapers, that is for the national newspapers and the others that
set the same 3,925 yen per month subscription price as Yomiuri, Asahi and Mainichi. These
predictions, standard errors of prediction and prediction errors are reported in the last columnsof Table 4. The prediction errors are positive and indicate that subscriptions to the national
dailies and others are 500 yen or more per month higher than if their pricing behavior mimickedthat of the other local papers. The average prediction errors are Yomiuri:624 yen per month;Asahi:633 yen per month; Mainichi:664 yen per month, and for the regional and local
papers:536 yen per month. The overall average, Nikkei aside, is 591 yen per month. Must I state
12the obvious, that the content of the higher-priced papers may be more esteemed than that of theothers? If nevertheless we accept these estimates as measuring a collusive pricing effect, howgreat is the implied economic waste? The combined morning circulation in 2007 of all these,
again Nikkei aside, is 33.4 million.
A back-of-envelope calculation using my estimates of the price elasticities îs =2.3 and îa =3.5
gives an approximate amount for the economic waste arising from 500 yen per month collusive
increase in price of subscription. The calculations are straightforward. I find that the loss inconsumer surplus to subscribers is 223-billion yen per year, the loss in consumer surplus toadvertisers is about 89-billion yen per year, and the increased profit of the newspaper companies
is 16-billion yen per year. Hence, the net waste is roughly 300-billion yen /yr ($3-billion/yr.).
I have placed the precise figures in the text box below.

Summary of effects of collusive pricing on consumer surplus from subscriptions and fromadvertising and on newspaper profits:ÄCSs = 1,573 !1,796 = !223-billion yen/yrÄCSa = 283 ! 372 = ! 89-billion yen/yr.
ÄCS = !312-billion yen/ yr.
ÄÐ = 16-billion yen/ yr.
ÄCS+ÄÐ = !296-billion yen/ yr.

This calculation is crude and ignores some secondary effects such as improvement innewspaper content and substitution toward non-colluding newspapers. Some detailed notes onthese welfare calculations may be found in Appendix 2. Here I will sketch the main assumptions
used.
The price-cost margin equations:(pa-ca)/pa =1/îa

(ps-cs)/ps =1/îs ! paa /pss ,imply that total profit equals(ps-cs)s + (pa-ca)a + c̄as !fkk = pss/îs ! paa + paa/îa + c̄as !fkk .
= pss/îs ! faa ! fkk .

13

It might seem from this that advertising contributes nothing to profit, but actually it does. Notethat revenue from subscriptions pss in this expression presumes profit-maximizing pricing ofsubscriptions and advertising. Any increase in the marginal revenue from advertising or
reduction in the costs of supplying advertising, lead the newspaper to set a lower price ofsubscriptions which results in enlarged revenue from subscriptions, and increases the first termin the above expression for total profit.
The welfare calculations assume that collusive subscription pricing has no effect on price ofads per subscriber Ä(pa/s)=0, which implies also no effect on quantity of ads placed (Äa=0). This
amounts to treating any increase in first-copy cost per subscriber caused by decreased circulation
as negligible Ä(fa/s)=0; recall that profit-maximizing implies pa/s = (fa/s + c̄)(1!1/îa)-1 .
Increasing the monthly subscription price by 500 yen (raising it to 3,925 yen per month),
constricts circulation in the newspapers that join in this, and so also lowers the demand for ads.
This reduces the consumer surplus from ads and reduces the newspapers’ revenues fromadvertising. But of course the newspapers enjoy a higher marginal profit (actually reduced
marginal losses) in their sales of subscriptions.
The reason why colluding newspapers would profit from all setting the same high subscription
price is that the cross-elasticities of demand among them are positive; the rival papers aresubstitutes in demand. As they adjust their prices together they face a less elastic demand
response than would any one of them if it adjusted only its own price. A simple calculationshows that if the 500 yen per month price increase maximizes the profits of the colluding
newspapers, then they must face an elasticity of demand with respect to adjustment in theircommon price of 2.0, compared to the 2.3 estimated elasticity of demand with respect to own
price. That is, the average cross-elasticity of demand between each of the sixteen colluding
papers seems to be about 0.02 (= (2.3!2.0)/(16!1)). The basis for this calculation is thefollowing: From the expression for price of subscriptions: ps=(c0+c̄k+c̄a!paa/s)(1!1/îs)-1, theratio of non-collusive price to collusive price is:
ps /ps* = 3,425/ 3,925 = (1!1/îs*)/(1!1/îs) = (1!1/îs*)/(1!1/ 2.3) ,from which it follows that
(1!1/îs*) = (0.87)(1!0.43) = 0.50 = (1!1/ 2.0).
The cross-elasticities of demand among the colluding papers are thus rather small (.0.02).
Otherwise the collusive price increase would be much greater than it is. Based on this, each14

newspaper in Japan seems to have its own base of loyal subscribers, reluctant to switch
patronage. Horizontal differentiation is prominent.
A final detail worth addressing is why some local newspapers join in setting the collusive
price while many others do not. A related question is what deters defection from the cartel? Ishould first frankly admit that I do not have good answers. But here goes anyway. On thequestion of which papers join in setting the collusive price, there seem to be two factors. One is
the size of circulation. The colluding local papers are mostly the ones with the largest circulation.
The two notable exceptions to this are the Shizuoka Shimbun (s=717,229, and ps=2,900 yen permonth) and Tokyo Shimbun (s=585,508, and ps=3,250 yen per month). The Tokyo Shimbun isin fact owned by Chunichi which does join in setting the collusive price for its flagship paper
based in Nagoya (s=2,774,585). My conjecture is that the local newspapers based in more
populous cities face greater cross elasticities of demand with the national dailies (because theirreaders are sophisticated urbanites interested in the goings on in the cultural center).
Participation by the large circulation local papers in the collusive pricing is thus valuable to theother colluders. The smaller circulation newspapers face essentially independent demand andremain outside the collusive ring without consequence. But cross-elasticity of demand can also
be too great to sustain inclusion in the cartel, especially if side-payments are problematic. My
conjecture is that the Shizuoka Shimbun and Tokyo Shimbun can remain outside the collusive
ring because their geographic proximity to the home base of the national papers would make it
impossible for them to match the collusive price and remain solvent (Shizuoka lies between
Tokyo, the home base of Yomiuri, Asahi and Mainichi, and Nagoya, the home base of Chunichi).
On what deters defection from the cartel by any of the national papers themselves, say, or by
the others, the calculation must be that defection would end the cartel. Or there may be someenforcement mechanism that is opaque to me, such as full participation in press club activities
being contingent on compliance. The resale price maintenance system assures that deviations
from collusive pricing will be detected.

5. Conclusion.
Japan’s newspaper industry, like those of other nations, is likely soon to be overtaken by the
profound technological changes moving all writing from print to electronic media. Economists
have a brief time yet to study the peculiar practices of the Japanese newspaper tribe before it all

15

disappears or at least evolves. When the obituary for Japanese daily print newspapers is finally
written, a few lines in it should be devoted to resale price maintenance. Japan’s leading national
newspapers and a dozen of the largest regional and local papers, protected by a special 1953
exemption from antimonopoly law, have persistently kept their monthly subscription prices atthe same common level, about 15 percent higher than they would otherwise have set. In doing
so they added 16-billion yen per year to their own profit, based on my estimates here, but
imposed a ¥300-billion per year burden on the nation.

16

Appendix 1. Data sources:
pages of ads, total pages:
Dentsu Inc. (Annual a). Dentsuu koukoku nenkan (Dentsu advertising annual), Dentsu.

subscription prices, circulation:
Dentsu Inc. (Annual b). Dentsuu shinbun nenkan (Dentsu newspaper annual), Dentsu.

prices of advertising:
Koukoutantou.com. Website. http://www.koukokutantou.com/newspaper_1.html

17

Appendix 2. Some notes on the welfare calculation.
Here let asterisk * denote observations under the collusive pricing regime, and let no asterisk
denote the counterfactual absence of collusion.
(i). Givens:
Revenue from ads relative to revenue from subscriptions for newspapers
with s > 800,000 (source=Japan Newspaper Association):
pa*a* /ps*s* = 0.45
Morning circulation 2007 for dailies with subscription price 3,925 yen/mo:s* = 33.4-million.
(ii). From estimates:
Price elasticity of demand for ads:
îa=3.5
Own-price elasticity of demand for subscriptions in each newspaper:îs =2.3
Collusive increase in monthly subscription price:
ps = 3,425 yen/mo. 6 ps* = 3,925 yen/mo.
(iii). Inferences (assuming Ä(pa/s)=0, and so Äa=0; and assuming Äk=0) :Implied price elasticity of demand for subscriptions as prices of colluding newspapers areadjusted together:îs* =1.97...reasoning:
From expression for price of subscriptions: ps = (c0+c̄k+c̄a!paa/s)(1!1/îs)-1,
ps /ps* = 3,425/ 3,925 = (1!1/îs*)/(1!1/îs) = (1!1/îs*)/(1!1/ 2.3) .
(1!1/îs*) = (0.87)(1!0.43) = (1!1/ 1.97)
Implied decrease in circulation caused by collusive increase in subscription price:s = 43.7-million 6 s*= 33.4-million...reasoning:
From demand for subscriptions: s= A ps*-îs* kè ,s/s* = ps-îs* /ps*-îs* = 3,425!2/ 3,925!2 = 1.313 = s /33.4-million
Implied decrease in 2007 annual revenue from subscriptions caused by collusive increasein monthly subscription price:
ps s = 1,796-billion yen/yr 6 ps* s* = 1,573-billion yen/ yr.

18

Implied decrease in advertising revenue caused by the decrease in circulation that was
induced by collusive increase in price of subscriptions:pa a = 930-billion yen/ yr. 6 pa* a* = 708-billion yen /yr.
...reasoning:
From assuming Ä(pa/s)=0, and so Äa=0; and assuming Äk=0, and given
pa*a* /ps*s* = 0.45, deduce that pa*a* = 0.45 (1,573) = 708 billion yen/ yr. ;and paa/s = 0.45 ps*, so paa = 0.45 ps* s*(s/s*) = 708 (1.313) = 930-billion yen/ yr.
The consumer surplus of subscribers:= ps*s /(îs*!1) = ps*s /(2.0!1) = ps*s
CSs = 1,796 billion yen/yr 6 1,573-billion yen/ yr.
The consumer surplus of advertisers:= paa /(îa!1) = paa /(3.5!1) = 0.4 paa
CSa = 372-billion yen/yr 6 283-billion yen/ yr.
Change in profit resulting from collusion := (ps*s*/îs* ! faa ! fkk) ! (pss/îs ! faa ! fkk )= ps*s*/îs* !pss/îsÄÐ = 1,573/ 1.97 !1,796/ 2.3 = 797!781 = 16-billion yen/yr.
Summary:
CSs = 1,796 billion yen/yr 6 1,573-billion yen/ yr.
CSa = 372-billion yen/yr 6 283-billion yen/ yr.
ÄCSs = 1,573 !1,796 = !223-billion yen/yrÄCSa = 283 ! 372 = ! 89-billion yen/yr.
ÄCS = !312-billion yen/ yr.
ÄÐ =16-billion yen/ yr.

ÄCS+ÄÐ = !296-billion yen/ yr.

19

References
Argentesi, Elena and Lapo Filistrucchi. (2007). “Estimating Market Power in a Two-Sided
Market: The Case of Newspapers”, Journal of Applied Econometrics, vol. 22, pp. 12471266.
Armstrong, Mark. (2006). “Competition in Two-Sided Markets”, The RAND Journal of
Economics, vol. 37, No. 3 (Autumn), pp. 668-691.
Blair, Roger D. and Richard E. Romano. (1993). “Pricing Decisions of the Newspaper
Monopolist”, Southern Economic Journal, vol. 59, no. 4 (April), pp. 721-732.
Chandra, Ambarish and Allan Collard-Wexler. (2008). "Mergers in Two-Sided Markets: An
Application to the Canadian Newspaper Industry", Journal of Economics andManagement Strategy, forthcoming.
Dentsu Inc. (Annual a). Dentsuu koukoku nenkan (Dentsu advertising annual), Dentsu.
Dentsu Inc. (Annual b). Dentsuu shinbun nenkan (Dentsu newspaper annual), Dentsu.
Dentsu Inc. (2009). Jouhou medeia hakushou 2009 (Information media white paper 2009),
Daiyamondo sha.
Facta (2007). Chou-Mai-Yomi-Kei VS chihoushi no shea arasoi, dokusen nyuushu, tadoufuken
ichiran (Asahi Mainchi Yomiuri Nikkei vs regional newspapers, rivalry for shares andmonopolization, summary of number of copies issued in each prefecture), Facta, July
2007. http://facta.co.jp/article/200707008.html
Flath, David. (1989). "Vertical Restraints in Japan," Japan and the World Economy, 1: 187-203.
Japan Fair Trade Commission. Chosakubutsu saihan kyougikai (dai hakkai kaigou) gijiroku nado
kouhyou ni tsuite (Official announcements of the eighth meeting of the conference on
resale pricing of printed items). Shinbun ryuutsuu-torihiki kankou genjou (Current stateof transaction practices in newspaper distribution), shiryou ni (Data tranche no. 2)
http://www.jftc.go.jp/pressrelease/08.july/080724tenpu02.pdf
Japan Fair Trade Commission, “Specific Unfair Trade Practices in the Newspaper Business”,
Fair Trade Commission Notification No. 9, July 21, 1999.
Japan Newspaper Publishers and Editors Association. Deetabukku nihon no shinbun (Databookon Japanese newspapers), nihon shinbun kyokai, annual.
Jullien, Bruno and Patrick Rey. (2007). “Resale Price Maintenance and Collusion”, The Rand
Journal of Economics, vo. 38, no. 4 (Winter), pp. 983-1001.
Koukoutantou.com. Website. http://www.koukokutantou.com/newspaper_1.html

20

Nikae, Daisuke. (2010). “Uniform Pricing in the Japanese Newspaper Industry”, unpublishedmanuscript.
Picard, Robert G. (1998). “A Note on the Relations Between Circulation Size and Newspaper
Advertising Rates”, The Journal of Media Economics, vol. 11, no. 2, pp. 47-55.
Rosse, James N. (1970). “Estimating Cost Function Parameters Without Using Cost Data:
Illustrated Methodology”, Econometrica, vol. 38, no. 2 (March), pp. 256-275.
Telser, Lester. (1960). “Why Should Manufactureres Want Fair Trade?”, The Journal of Law
and Economics, vol.3, pp. 86-105.
Van Cayseele, Patrick and Stijn Vanormelingen. (2009). “Prices and Network Effects in TwoSided Markets: the Belgian Newspaper Industry”, unpublished manuscript.

21

Table 1. Regression estimates relating newspaper ad pricing to circulation.

Advertisingrate for legal
noticeAdvertising rate for display ad

1 cm x 1 dan

1 dan

5 dan

15 danIntercept

11,30911.2

112,692
8.6

100,875
8.2

93,420
6.4

Circulation (2003)

0.019
19.1

0.440
34.0

0.416
34.2

0.352
24.3

R-Square

0.756

0.908

0.909

0.835

n=119

Note. The numbers below the parameter estimates are t-statistics. The sample includes
observations for each edition of each newspaper: morning and evening editions, national andlocal papers.

22

Table 2. Descriptive statistics on Japanese newspapers, 2007.

The 37 newspapers in the sample with
subscription prices less than 3,925 yen
per month
Variable

The 28 morning editions of the 16 newspapers
in the sample with subscription prices of 3,925
yen per month

Mean Std Dev Minimum Maximum

Subscription price (¥/mo.) ps
3,002
355
1,995
Circulations 250,615 177,397 40,165
Content pages per month
k
553
87
344
Pages per month
k+a
810
133
496
Ad Pages per month
a
257
75
82
Ad pages per month
divided by circulationa/s 0.00131 0.00076 0.00033

Mean

3,870 ps
3,925
975,652s 1,153,830
715 k
599
1,024 k+a
1,034
404 a
435
0.00479

23a/s

0.00100

Std Dev
0
1,374,653
46
123
103
0.00109

Minimum Maximum
3,925
3,925
72,617 6,068,547
498
743
791
1,230
267
640
0.000110.00448

Table 3. Explaining the newspaper subscription prices that are less than 3,925 yen per month

SubscriptionPrice(¥/month)t-value

Explanatory Variable
Intercept

2,723

Dummy equal to one if
price includes bothmorning and evening
editions

434

Pages per month

k+a

0.5

0.88

Pages of advertising
per montha-0.7-0.6 0Pages of advertising
divided by circulation

a/s-103,929-1.65

R-squared=0.436
n=37

24

Table 4. Out-of-sample prediction errors for monthly subscription price.
Circulation
Newspaper
morning
THE YOMIURI SHIMBUN(Tokyo)YOMIURI SHIMBUN(Hokkaido)
YOMIURI SHIMBUN(Osaka)YOMIURI SHIMBUN(Nagoya) morning
YOMIURI SHIMBUN(Seibu)YOMIURI SHIMBUN(Hokuriku)
YOMIURI SHIMBUN
THE ASAHI SHIMBUN(Tokyo)THE ASAHI SHIMBUN(Hokkaido)
THE ASAHI SHIMBUN(Osaka)THE ASAHI SHIMBUN(Nagoya)
THE ASAHI SHIMBUN(Seibu)THE ASAHI SHIMBUNTHE NIKKEI (Tokyo)
THE NIKKEI (Hokkaido)
morning
THE NIKKEI (Osaka)
THE NIKKEI (Nagoya)
THE NIKKEI (Seibu)
THE NIKKEITHE CHUNICHI SHIMBUN

Subscription price(¥/mo.)

Prediction

s.d.

Error

3,925

3,361

390

564

3,925

3,168

339

757

3,925

3,361

372

564

3,007

2,713

331

294

3,925

3,324

338

601

3,925

2,959

379

966

3,925

3,369

378

556

3,925

3,102

335

823

3,925

3,366

348

559

3,925

3,293

313

632

3,925

3,332

331

593

4,383

3,382

391

1,001

3,568

1,875

697

1,693

4,383

3,333

384

1,050

4,383

3,083

403

1,300

4,383

3,073

401

1,310

3,925

3,394

323

531

evening

6,068,547
2,357,250
232,992
64,3962,547,583
1,332,683
160,333
914,687
109,479
108,299
10,032,441

5,180
3,868,988

4,358,660
1,958,061
155,750
53,7402,336,911
1,294,724
424,246
146,107791,140
8,066,707

135,628
3,588,260

1,809,446
937,844
56,533
775,434
476,176
204,996
143,319
194,100
3,040,509

66,363
1,623,702

2,774,585
650,29725

Circulation
Newspaper
morning
MAINICHI SHIMBUN(Tokyo)MAINICHI SHIMBUN(Hokkaido)
MAINICHI SHIMBUN(Nagoya)
MAINICHI SHIMBUN(Seibu)MAINICHI SHIMBUN(Osaka)MAINICHI SHIMBUNSANKEI SHIMBUN(Tokyo)
SANKEI SHIMBUN (Osaka)
SANKEI SHIMBUNHOKKAIDO SHIMBUNTHE NISHI-NIPPONSHIMBUNTHE CHUGOKUSHIMBUN
KOBE SHIMBUNKYOTO SHIMBUNTHE KAHOKU SHIMPOSHINANO MAINICHISHIMBUNTHE SANYO SHIMBUNTHE HOKKOKUSHIMBUNTOKUSHIMA SHIMBUN(¥/mo.)

Prediction

s.d.

Error

3,925

3,378

305

547

3,925

3,009

333

916

3,925

3,245

294

680

3,925

3,312

302

613

3,925

3,360

306

565

2,950

2,962

302

-12

3,925

3,386

300

539

3,925

3,341

349

584

3,925

3,343

322

582

3,925

3,364

308

561

3,925

3,359

297

566

3,925

3,344

297

581

3,925

3,347

299

578

3,925

3,328

305

597

3,925

3,356

300

569

3,925

3,372

302

553

3,925

3,357

315

568

3,925

3,228

302

697

evening

1,640,998
462,952
72,617
17,697
176,101
49,069664,559
102,896
1,419,552
3,973,827

830,585
1,463,199

975,652
1,224,957
2,200,609

633,154
633,154

1,204,151
639,634
854,655
175,518
717,794
73,628561,881
254,782510,000
317,881
501,356
109,871

NIIGATA NIPPO

Subscription price495,354
55,784
485,23152,492466,627
72,015343,274
84,808
254,724

26

Figure 1. Morning circulation in 2007 of Japan’s national, local and regional newspapers in each prefecture, ranging from west (Okinawa) to east
(Hokkaido).

Source: Chou-Mai-Yomi-Kei VS chihoushi no shea arasoi, dokusen nyuushu, tadoufuken ichiran (Asahi Mainchi Yomiuri Nikkei vs regional
newspapers, rivalry for shares and monopolization, summary of number of copies issued in each prefecture), Facta, July 2007.
http://facta.co.jp/article/200707008.html
27