NEWSPAPERS AND PUBLIC GRANTS: A MATTER OF QUALITY Maria Rosa Battaggion*,** and Alessandro Vaglio* ABSTRACT The present paper deals with the issue of newspaper subsidies in a framework of endogenous quality provision. We compare monopoly and duopoly cases in a ver- tically differentiated model. For monopolies we show that a per-copy subsidy reduces quality. Conversely, in duopolies in the vertically differentiated model, we show that a state subsidy might increase the quality of the low-quality news- paper and decrease the quality of the high-quality newspaper. 1 INTRODUCTION Newspapers and mass media receive a high degree of attention on the political agenda. It is well known that newspapers provide greater benefits to society than to individual readers. In fact, in addition to the functions of informing and entertaining, newspapers provide social services, including helping to inform public opinion, expressing different and minority voices and perform- ing the role of watchdog for public interest. Therefore, many countries have provided newspapers with significant public grants in a variety of forms, such as regulatory relief, fiscal advantages, and subsidies. Furthermore, newspapers, as well as being affected by the economic and financial crisis that has contin- ued for several years, are suffering from a structural crisis, as spaces for growth in the supply of mature services are closing up while new development opportunities related to the spread of the Internet do not seem to be able to compensate for the income losses that are being registered. Therefore, public subsidies tried to countervail the collapse of the newspapers and, at the same time, to prevent the decrease in quality in the press market. However, newspa- per subsidies might have unintended effects precisely on quality. In fact, the introduction of a per-copy subsidy, to increase readership, may induce a reduction in the quality level to sell more copies. In this respect the present paper attempts to shed new light on the role of subsidies in shaping the performance of the press market with a particular focus on quality. For this purpose we should take into account some peculiar features of the information and newspaper market. *University of Bergamo **ICRIOS Bocconi University Scottish Journal of Political Economy, DOI: 10.1111/sjpe.12152, Vol. 65, No. 1, February 2018 © 2017 Scottish Economic Society. 27