Advertising Spending and Media Bias: Evidence from News Coverage of Car Safety Recalls

Abstract

Do mass media bias content in favor of advertisers? If so, what market conditions limit or exacerbate this bias? We examine the relationship between advertising by auto manufacturers in U.S. newspapers and news coverage of car safety recalls between 2000 and 2014. This context allows us to separate the influence of advertisers, who prefer less coverage, from that of readers, who prefer more information about the safety risks associated with the recalls. Consistent with theoretical predictions, we find that newspapers provide less coverage of recalls issued by manufacturers that advertised more regularly on their pages over the previous two years. The effect is especially pronounced for more severe recalls, which are more likely to hurt manufacturers’ reputations. Competition for readers from other newspapers mitigates proadvertiser bias, and competition for advertising by online platforms exacerbates it. We also present suggestive evidence that less news coverage of recalls is associated with more fatal car accidents. This paper was accepted by Joshua Gans, business strategy.

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The effects of the news media on a firm's voluntary product recalls

“…First, recalls are pervasive in the automobile industry, increasing the relevance of our research question to the industry (Carlier, 2022). Second, the economic significance and public relevance of the US automobile industry (Hill et al., 2017) increase the industry's coverage in the news (Beattie et al., 2021). High coverage makes relevant the measurement of the effectiveness of news (e.g., Wang et al., 2021).…”

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Scarcity-driven monetization of digital content

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