April 26, 2009

Revenue in a Recession


Under the condition of a recession, it’s not surprising that magazine firms are seeing a decrease in revenue. Money in the magazine business comes almost exclusively from advertising, and businesses that typically advertise in magazines have less money to do so as a result of their own recession-related financial problems. So, magazine firms are looking for new ways to increase revenue to maximize profits. This is the topic of the article I chose.

The question is, if magazines increase subscription prices, will subscribers continue reading and allow firms to bring in more revenue? The writer leads readers to make the assumption, consistent with economic analysis, that firms are profit maximizers and consumers are utility maximizers. The article doesn’t offer a solution explicitly, but rather bats back and forth the idea of raising subscription prices.

If subscription prices were raised, readers could react by not renewing their subscriptions or they could ignore the increase and fork over the few extra dollars. It seems that a magazine firm would fall under the category of monopolistic competition—readers have some loyalty to the magazines they read, thus firms have some price searching power. Realistically, the added cost would be negligible to consumers and most would continue their loyalty. The result would be an extra lump of cash for the firm.

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