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Some Economics of Echo Chambers

Author

Listed:
  • Martin Richardson
  • Frank Stähler

Abstract

This paper analyzes competition between a media firm providing true information (news) and two fake-news providers that create echo chambers. Information from the media firm is uncertain but truthful, and consumers enjoy confirmation of their prior beliefs due to cognitive dissonances. We show that, even if real news is more valued than fake news, entry by fake-news providers becomes more profitable with increased variance of information. Furthermore, a public news provider makes entry for fake-news providers harder than for a profit-maximizing media firm.

Suggested Citation

  • Martin Richardson & Frank Stähler, 2021. "Some Economics of Echo Chambers," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 177(2), pages 205-219.
    • Handle: RePEc:mhr:jinste:urn:doi:10.1628/jite-2021-0004
    DOI: 10.1628/jite-2021-0004
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    More about this item

    Keywords

    media; fake news; echo chamber;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media

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