Masherg’s Law and Free News Market Failure (1 of 19)
Introduction
Editor’s note: This is the first in a series of 19 installments about inter-related topics contributing to free news market failure.
Why do consumers tolerate low quality news when they do not tolerate low quality cars? 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 individual cognitive processing limits. With Masherg’s Law, the flood of low-quality information drowns out the trickle of high-quality information. Consumer and social economic benefit are zero, with all economic benefit going to the supplier. Information asymmetry contributes to a complex relationship between the consumer and the supplier. The principal-agent model shows an alternative view of that relationship. From a systems view, there is no single cause. The free news market has failed due to seven factors: I. technology enables fast low-cost distribution such as television, websites, or social media; II. existing laws protect distributors from content liability, like Section 230 in the United States; III. facts are expensive and the value fades quickly in the 24-hour news cycle; IV. opinions have legal protection; V. consumers think news is free due to supplier secondary payment mechanisms; VI. consumers cannot process the immense volume of news due to Masherg’s Law. And VII. suppliers know more about consumers than consumers do about themselves. These seven factors converge, resulting in the oddity of consumer perceived zero-cost infinite supply. This floods the market with non-perceived low-quality products. Without a consumer feedback loop on price, the market does not correct and becomes flooded with more inexpensively produced low quality news, resulting in economic market failure.
I started with simple questions about everyday news.[1] If a low-quality car is easy to spot after the buyer has owned it for some time, why isn’t low-quality news easy to spot? Then, if consumers demand high-quality cars, why don’t they demand high-quality news?
People worldwide are continually exposed to a barrage of information from suppliers with diverse motivations, leading to personal confusion and social chaos. Information asymmetry for tangible products was addressed many years ago, such as lemon laws to protect car buyers from unscrupulous sellers who have more information about a car’s quality.
News consumers and news suppliers interact to make a peculiar asymmetric market. While every historical advance in communications technologies has presented challenges, the speed of the internet, and our response to it, is unprecedented for both consumers and suppliers.
Economically, much news is perceived to be free by the consumer because of secondary payment systems. The evolution of low-cost information technology, coupled with legal frameworks and human behavior, has led to the failure of the free news market. A perceived price of zero leaves quality as the selection criteria, rendering traditionally market forces ineffective at balancing supply and demand.
This results from seven factors, each covered in-depth in the appendices: I. technology enables fast, low-cost channel creation; II. existing laws protect distributors from content liability; III. facts are expensive; IV. opinions have legal protection and are inexpensive; V. consumers perceive news is free; VI. consumers cannot process the volume of news; and VII. suppliers have sophisticated quality definitions far beyond the capabilities of consumers.
These and other topics are usually examined individually, rendering an incomplete picture of the free news market. This seven-factor model is a systems approach as a more complete basis for understanding why the market has failed.
I have written with four intentions. One, that academic economists deepen understanding of these ideas; two, that free news suppliers better understand their role and duty to their customers; three, that consumers of information are better able to process what they read and hear; and four, that stewards of public trust act intentionally and decisively to build the framework in which public information quality improves and becomes trustworthy.
READ MORE: Masherg’s Law and Free News Market Failure (researchgate.net)
READ MORE: Technology And Democracy
[1] News is defined as public information products, perceived to be free by the consumer, delivered by traditional media or internet media, excluding private information governed by agreements or contracts which have effective marketplaces.
