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Censorship: the Key to Lock-In?

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  • Brendan M. Cunningham

    (United States Naval Academy)

Abstract

Markets for information and entertainment are frequently characterized by increasing returns to scale in production and distribution. This implies that incumbent technologies enjoy an advantage over newcomer technologies; such markets can become locked into an inferior technology. Governments often heavily influence media markets through both direct ownership and censorship. I present a dynamic model with heterogeneity among consumers and firms in order to analyze the role of censorship in media markets. I assume there is a negative consumption externality across consumers and a negative cost spillover which an incumbent producer imposes on a newcomer. In a decentralized equilibrium, there is over-production of media from the incumbent technology. This reduces consumer utility and engenders lock-in of the inferior incumbent technology. I model censorship as a tax on information produced under the incumbent technology. A central planner who censors incumbent media can improve upon the decentralized equilibrium by reducing negative consumption externalities and unlocking the superior technology. I also show that censorship is only Pareto optimal when coupled with lump-sum transfers across consumers.

Suggested Citation

  • Brendan M. Cunningham, 2005. "Censorship: the Key to Lock-In?," Departmental Working Papers 10, United States Naval Academy Department of Economics.
    • Handle: RePEc:usn:usnawp:10
    as

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    File URL: http://www.usna.edu/EconDept/RePEc/usn/wp/usnawp10.pdf
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    References listed on IDEAS

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