“Indifferent Public, Passionate Advocates, and Strategic Media” by Ming LI
University of Bonn
We present a dynamic reputation model of news reporting by a profit-maximizing media outlet whose credibility is uncertain to the public. In each period, the media outlet chooses its source of news: a costly independent investigation or, possibly, a free report prepared by an interest group. The revenue of the media outlet consists of the subscription fees for the public and the access fees for interest groups. We characterize the equilibrium structure of information transmission with and without disclosure of the source of the news to the public. In particular, we demonstrate that uncertainty about the source of the news may increase the probability of independent investigation by the media outlet. Nevertheless, the probability of correct decisions by the public and the profit of the media outlet decreases when the media outlet can be paid for reporting the news by the interest group without disclosing this to the public.