Among the three major national newspapers in the USA, the Wall Street Journal , with average daily (Monday to Friday) circulation of 2.12 million, is reputed to be conservative. By contrast, the New York Times is reputed to be liberal. Its average daily circulation is 916,900, of which 46% is sold in greater New York City. (Sources: “Wall Street Journal still first in daily circulation,” mediadecoder.blogs.nytimes.com, May 3, 2011; New York Times Company, 2009 Annual Report.)

(a) Explain how a media industry analyst could apply the Hotelling model to competition between the New York Times and the Wall Street Journal.

(b) Suppose that the marginal cost of producing the New York Times increases by 20 cents. Using relevant diagrams, explain: 

(i) how the New York Times should adjust its price; and 

(ii) how the Wall Street Journal should respond.

(c) Suppose that people with more intense political preferences switch from reading newspapers to listening to radio talk shows, while a new generation of readers is more politically moderate. How should the New York Times and Wall Street Journal adjust their prices to these changes?