Free Press, Regulated Competition

This paper examines newspaper cartels, a largely unoccupied field in media history, from the perspective of longevity. We analyse Finnish newspaper industry from the 1910s to 1970s and show that newspapers sought to regulate various aspects of competition, such as subscription prices, advertisement tariffs, and newsprint prices. Data indicates that political rivalry shaped the newspaper cartel collaboration until late 1950s: the cartel was set up by right-wing and centrist papers and, unlike in other Nordic countries, the Social Democratic press remained outside of the association until 1958. Political shocks of the Finnish Civil War in 1918 and the Second World War also changed the composition of the cartel. The era of private cartels in the newspaper industry gradually started to fade away as a result of anti-cartel laws in the 1960s and governmental anti-inflation measures in the 1970s. We conclude that the economics of newspaper industry and the cartelisation of the wider business environment, newsprint suppliers in particular, encouraged newspapers to co-operate with each other. The results of this article increase the understanding on the collaborative and competitive environment of newspaper companies, but also contributes to broader questions on cartels and their inner dynamics.


Introduction
Freedom of press is one of the cornerstones of modern democracy, but in this article, we suggest that newspaper companies can be as eager as other businesses to limit their mutual competition by forming cartels.We explore the history of the Finnish Newspaper Association, 1 which operated as an organisation that regulated competition from the 1910s until the 1970s.
Economic historians have explored cartels in the twentieth century to a growing degree during the past two decades.Cartels are a form of private regulation between competing firms and have been a significant economic institution in international trade since the late nineteenth century.Regional, national, and international cartels have existed in varying legal conditions and contributed in innumerable ways, for better or for worse, in conditions of trade and consumption, political economy, and international relations. 2ost business history research on cartels has been largely concentrated on raw materials, basic commodities, and industrial products. 3While we know less about cartels in the service sector, and the media sector in specific, the field is not entirely unoccupied.Tworek, Silberstein-Loeb, and Rantanen, for instance, have explored oligopolistic competition of international news agencies since mid-nineteenth century and discovered long-lasting, international cartels in the field. 4Åström Rudberg and Lakomaa have studied Swedish advertising sector and shown that the industry, occupied by a large number of competitors, have also fostered long-lasting national cartels. 5Newspaper cartels have been studied from the perspective of readership, advertisers, and political differentiation, but the empirical data have been limited to one or two firms for short periods of time. 6n this article, we survey the long-lasting collaboration of newspaper cartel and examine the conditions of its birth, pauses, and re-starts.Research on news agencies and advertising companies shows that cartels in the media sector can last for a long time.Market structures and the economics of media sectors do not explain the longevity; the number of competitors and profitability along with other factors differ between sectors.In the advertising industry, for instance, the helping hand of the government has been crucial while in news agencies, the cartels have existed in oligopolistic market.
According to De, economic research does not directly model cartel durations. 7owever, economic literature discusses cartel durations to some extent. 8It often uses datasets from registers produced by authorities and the time span covers one or two decades which in a historical perspective is still quite a short time.Results are ambiguous, starting from the concept of 'duration' itself and the credibility of data.Levenstein and Suslow have nevertheless identified five years as an average cartel duration, but with the notion that many cartels last less than a year and others go on for decades. 9his article uses a historical methodology and utilises empirical material produced by the cartel actors from the 1910s until 1970s.Choices of methodology and data allows us to observe reliably when collusion starts and when it is in a pause as well as to examine the conditions to engage, pause, and re-establish collusion.The results outlined in this article indicate that as with other media companies, newspaper companies regulated their competition for most of the twentieth century with consecutively renewed cartel agreements.Furthermore, we show that changes in the competition environment, political differences, and increased public regulation of commerce during the twentieth century-such as during war time and introduction of the first competition laws-curbed the cartel collaboration at times but after the breaks the general tendency of the companies was towards collaboration and regulating competition through cartels.
Cartel research often emphasises that besides increasing the profit, creating a predictable future is an important incentive for forming business cartels. 10Particularly in capital-intensive sectors where the barrier to entry is high and the profit margin is low, company owners have been prone to creating a safer business environment in the long run through cartels.Then again, high number of competitors, difficulty in monitoring members and punishing cheating make cartels more volatile.This article shows that these notions also applied to the newspaper sector: increasing the profitability and creating predictability catalysed cartelisation, but the large number of competitors combined with ineffective means of monitoring and punishment led to price wars and the cartel's instability. 11e also argue that cartelisation in the newspapers' immediate business environment-newsprint above all-catalysed cartelisation in the newspaper industry.As earlier scholarship has noted, international news agencies were cartelised wholesale suppliers of news to newspapers, who were the retail sellers. 12Yet, a more important catalyst of cartelisation of the newspaper sector in Finland was the cartelisation of newsprint suppliers.As Stamm has recently shown, acquiring adequate supplies of newsprint at a reasonable price was vital for publishers, who in the early twentieth century were building ever-larger industrial plants-a development which also raised the barrier to entry in the newspaper industry. 13Buying paper from internationally operating newsprint cartels created a demand in the newspaper industry for similar institutions.Moreover, as Finland had no legislation resembling the United States' Sherman Anti-Trust Act of 1890, both newsprint suppliers and buyers could freely build cartels.
In this article, we show that the newspapers' cartel was not affected only by business aspects or incentives related to the business environment but also by political rivalry.Both political networks and business mechanisms were important for news sector, as Tworek has underlined. 14Inclusion in and exclusion from the Finnish cartel was not defined by economic factors alone-such as the size of the newspapers or the competition of readership-but until the 1960s also largely by political affiliation of the newspapers.Social Democratic newspapers were formally excluded from the Finnish Newspaper Association until the early 1960s.
We explain the connectedness of the cartel and political rivalry with the character of the newspaper companies and the product.Finnish newspapers, and many other Nordic papers, were political enterprises; they were born in the nineteenth century as channels for new political parties rather than as companies the purpose of which was to produce profits for the shareholders. 15Ties between newspapers and political parties in Finland remained strong until the post-World War II decades and politics were a factor in forming economic institutions such as cartels.
The results shown in this article demonstrate that despite political rivalry and narrowing legal space for private cartels, which both curbed collaboration from time to time, newspapers were able and willing to create long-term cartels as much as news agencies and the advertising industry.Collaboration between competitors was far from easy, but a mutually agreed idea to reinforce 'the freedom of the press' through increased profits by economic collaboration, as the start of the cartel in the 1910s was understood, fuelled long term cartel collaboration.
This article is based mainly on the records of the Finnish Newspaper Owners' Association (SLA).The archive consists of a wide variety of documents, including board minutes, circulars, memos, annual reports, and correspondence.They offer an inside view on the activities of the cartel.This article also utilises literature, both academic and non-academic, on the history of newspapers in Finland and other Nordic countries. 16

Competition and Coordination Before 1939
Until 1917, Finland was part of the Russian Empire, in which the authorities limited the freedom of the press.The Finnish newspaper sector was nevertheless lively; new political movements, urbanisation, industrialisation, and a rising consumer society created a large number of small newspapers competing for readership.The market was regional, and only a handful of Helsinki-based newspapers reached a nationwide readership. 17hese leading newspapers were the first to start to regulate their mutual competition in the late nieteenth century over readership and advertisement money to improve FREE PRESS, REGULATED COMPETITION 499 profitability and predictability of their business. 18These newspapers also eventually initiated a national meeting in 1908 to create broader collaboration. 19n November 1908, managers from more than 40 newspapers from all over the country assembled to discuss economic problems.The managers were mainly concerned about three issues: the rising price of newsprint, competition for advertisements, and low cover prices.The newspaper owners and managers believed that collaboration in the form of price fixing of advertising and cover prices would lead to better profitability.The emerging collaboration included only the 'bourgeois press': the participants at the meeting were from political right or the centre newspapers.The idea of collaboration matured in 1910 and led to the creation of the Newspaper Association, which became the first newspaper organisation in the country-similar organisation had been established in Sweden in 1898. 20,21The Finnish newspapers agreed on mutual minimum advertising prices in their yearly meetings in 1908-1911 and informed the advertising agencies about them. 22Between 1910 and 1915 the Finnish newspaper association also educated its members about how to run a newspaper company successfully as well as instructing them on how 'healthy competition' in newspaper market worked. 23he outbreak of World War I changed business environment of newspapers.The war increased the demand for newspapers and circulations increased.At the same time, however, the price of newsprint skyrocketed.Newsprint was a major cost in the newspapers' production which made internationally cartelised paper mills soon the main problem for the Finnish Newspaper Association.Seeking an improved bargaining position vis-à-vis the newsprint cartel through the Newspaper Association reinforced the collaboration between newspapers whose only hope was that together they could expect to get fairer deals. 24Newsprint prices in Finland nevertheless increased more rapidly than subscription prices, decreasing drastically the profitability of newspaper companies.In addition, at the same time as the increasing newsprint price, the advertising income from companies sank.As a result, the war increased the circulation of newspapers, but plunged them into a profitability crisis. 25n 1916, the deteriorating profitability of newspapers led to intensified mutual collaboration.The association changed its rules and name to Finnish Newspaper Association and became a proper cartel that created and monitored competition regulation agreements between its members. 26It fixed subscription and advertising prices and demanded reasonable prices and enough supply from the Finnish newsprint cartel.The membership was limited, however.In Sweden and Norway, the Social Democratic press was included in the newspaper cartels, but the Finnish Newspaper Association welcomed only newspapers from the political right and centre. 27This was not written down in the rules but rather was a practice that was born because of growing tensions in the Finnish society between the political left and right.The other Nordic countries were independent, more prosperous and stable.In contrast, Finland was poorer and a part of authoritarian and increasingly unstable Russian Empire.Relations between socialists and non-socialists were rapidly deteriorating and Finland stood on the brink of revolution. 28n 1917, the Russian Empire collapsed, and Finland declared itself independent.Civil war broke out in Finland in January 1918 between the Reds (socialists) and Whites (centrist and right-wing parties).The war lasted for four months and claimed over 38,000 victims.The Whites won. 29During and after the tumultuous years 1917-1918, the political division between newspapers became wider.The Social Democratic press set up their own association, the Workers' Publishers Association (Työväen Kustannusliikkeiden Liitto), in 1917. 30ith the organizing Social Democratic press, the Newspaper Association recognised their own role in securing and reinforcing the lawful and constitutional state against the revolutionary forces of the political left.'For the first time, Finnish newspapers are truly free.[--] Time of fervent civic activity has come.Newspapers and magazines are among the most important instruments in building 'new Finland'', wrote the Newspaper Association in its April 1917 bulletin.In 1917-1918, it repeatedly encouraged its members to build financially strong papers and underlined the significance of collaboration in these efforts. 31On the eve of the Civil War, the association noted that 'time is getting worse particularly for the bourgeois press.A steady economic situation can provide the best security.Creating that is a nationally important mission'. 32fter the Civil War, the newspapers were 'starving to death'. 33The costs, both labour and paper, had skyrocketed in 1917-1918 while subscription and cover prices were lagging.Besides promoting mutual price policy, one of the core worries of the association was newsprint price which had doubled in 1918, shortage of supply because of international demand, and poor quality of paper.The association had regularly negotiated about these issues with the Finnish Paper Bureau (Paperikonttori) cartel and a selling organisation that represented the paper mills. 34he bargaining situation was not balanced: There was a strong seller cartel and a collective of many small buyers who did not have options to buy elsewhere because an international newsprint cartel had divided the market.The negotiations were not fruitful for the newspapers and the Paper Bureau dodged the newspaper owners' demands one by one.The paper mills could not afford to lower the prices because the cost of their raw materials had also skyrocketed.Supply for the domestic market could not be increased because paper was a crucial export product for Finland and the paper mills had to export as much as they could.Negotiations being in gridlock, the newspapers turned to the Finnish government in the hope that it would curb rising newsprint prices through legal actions, like tariff policies, or subsidies like the Swedish, Norwegian, and German governments had done.35 The newspapers argued that skyrocketing newsprint prices were not only a problem for newspaper companies, but also a security issue for the nation.36 The 'greedy paper lords' were pushing the 'bourgeois newspapers' to the brink of bankruptcy, which would have social impacts and security policy consequences as it gave an opportunity for the Social Democratic newspapers to grow.37 The entry of the government as a third party in the price negotiations between the two cartels was not a pleasant scenario for the stronger side, the Paper Bureau.Yet, the newsprint price question remained on the Parliamentary agenda until 1920 and created a strong incentive for the Paper Bureau to find a private solution for its dispute with the Newspaper Association.Private negotiations under the threat of government intervention led to an agreement, but the relationship between paper buyers and sellers remained tense and uneven.38 In the 1920s and 1930s, the Finnish newspaper cartel developed institutionally by creating clear rules, monitoring members, and inventing ways to punish cheats.These factors were vital for its development.39 The newspaper cartel created a price matrix which defined minimum levels for cover, subscription, and advertisement prices and discounts by region and newspaper size.The association negotiated on behalf of its members with the Paper Bureau on the price of newsprint and on advertisement prices with the larger agencies.The cartel also regulated the content of newspapers from the perspective of 'fair competition', meaning the ban of any subscription gifts or special supplements (e.g.Sunday or gardening supplements).40 The Newspaper Association's managing director ('asiamies') was in charge of the many cartel practicalities like arbitration of disputes between competitors and dealing with violations against the cartel rules.The big and small newspapers in regional markets were often disloyal towards the cartel, competing freely whenever they could, giving generous discounts for advertisements and subscriptions, and handing out subscription gifts and free samples.41 'With a few minor exception, all members have deviated from the association's (cartel) decisions', a group of some twenty newspapers complained in 1932.42 Disloyal and unsound competition from one newspaper led to retaliation from the competitors, creating a domino effect that gnawed away at the basis of the collaborative culture.Various methods to improve cartel loyalty, like imposing fines, cancelling membership, and inviting broader business networks like paper mills, bookshops, printing houses, news agencies, photo agencies, and advertising agencies to raise prices for cartel cheats were regularly discussed in the Newspaper Association in the 1920s.In the end, however, arbitration became the key method to deal with cartel deviations.43 The turn of the 1930s was challenging for newspapers and their cartel collaboration in the same way than the World War I years.The Great Depression increased the readership and circulation of newspapers, but firms also spent less money on advertisements and the price of newsprint remained high.As the overall result, costs increased and income dropped.44 The domestic newsprint price was higher than the international price, and due to Nordic-German newsprint cartels which divided the markets, the newspapers had no other choice than to buy from the expensive Paper Bureau.After colourful episodes in 1931-1932, during which the key actor was a Newspaper Association member, a newspaper-owner, and Member of Parliament Uuno Hannula, the government passed a shortlived statute on newsprint duties.45 The episode shows that newspapers, operating closely with politics, tended to seek help from political channels to solve business conflicts.

Government Regulation and Private Cartel
The Second World War changed the business environment of the Finnish newspapers in many ways.It led to an increase of government regulation in all sectors of society, leaving less room for private cartels to operate.At the same time, the war-time spirit unifying the nation alleviated political divisions between the Social Democrat, centrist, and right-wing parties, which made the collaboration between newspapers in the right-left axis easier.Therefore, paradoxically, the war both strengthened and weakened the cartel.After the war, cartel collaboration became harder again due to post-war government regulations and increased political competition in the right-centre axis.When freer competition was finally possible in the late 1950s, the newspapers once again expanded their private restrictions.
Finland became involved in the Second World War in November 1939 when attacked by the Soviet Union and the Winter War broke out.It sparked a new sense of solidarity in Finnish society which had suffered from deep political divisions between left and right since the Civil War.The wave of solidarity also touched the newspaper sector, and the Newspaper Association and the Social Democratic Workers Publishers' Association, which had not previously collaborated except in a few minor questions, agreed on mutual competition restrictions in advertisement tariffs and cover prices.They also started negotiating together on newsprint prices with the Paper Bureau. 46Lobbying against the war regulations became an important form of collaboration between the two newspaper associations. 47The war regulations expanded and by 1943 the government controlled the availability of newsprint and other vital raw materials, demanded the printing of state announcements free of charge, and regulated the price of newspaper like all consumer goods.Demand for newspapers and private advertising was extremely high again due to hunger of news and shortages of goods, but only the biggest newspapers-such as Helsingin Sanomat-whose owners had the skills and networks to partly evade newsprint rationing, could benefit from the boom. 48he Second World War ended in 1945, but war regulations lasted for until 1949, after which periodic anti-inflation measures continued until 1957 regulating newspaper prices among other consumer prices.During price-freezes in the 1950s, the Newspaper Association had limited capacity to coordinate prices.The newspapers also suffered from a paper shortage in 1951-1953 due to the so-called Korea boom when international demand for newsprint grew and the Finnish paper mills exported as much as they could through their sales cartel.The newspapers were completely dependent on the Finnish paper mills as the international newsprint cartel still divided markets. 49he outcome of the Second World War brought about changes in the Finnish politics.Finland retained its independence and Western-style political and economic system, but having been defeated by the Soviet Union, Finland was forced to yield to many Soviet demands.One of these was legalisation of communism, which had been mostly suppressed since the Civil War of 1917.After the Second World War, the Finnish Communist Party, founded up by exiles in Moscow in 1918, set up a new party in Finland, the Finnish People's Democratic League (Suomen Kansan Demokraattinen Liitto, SKDL), which received almost a quarter of the votes in the parliamentary election of 1945.SKDL also held several key ministerial posts until it lost the 1948 election.Other key parties were the centrist Agrarian Party and the Social Democratic Party, which competed with the communists for working class votes.The influence of the conservative National Coalition Party declined.
Based on the party's success in the 1948 parliamentary election, the Agrarian newspapers demanded increased representation on the board of the Newspaper Association.The board was formed through voting, and the Agrarian newspapers failed to win more places.As a result, 12 Agrarian newspapers left the Newspaper Association and its cartel and joined the Association of Agrarian Newspapers (Maaseutulehtien Liitto) founded in 1946. 50'Newspapers survived the war, but could not deal with peace', a publisher pointed out in 1949. 51In the 1950s, the Finnish newspapers had four associations.These associations were defined by political views, not differentiation of economic interests (Table 1).
The Newspaper Association and its cartel shrank from over 60 members to about 50.The Agrarian exit had major consequences in provincial competition; when one out of two or three local competitors left the cartel, it virtually paralysed any efforts to regulate competition in that province.As a result, the whole system of national newspaper cartel became weak.
However, while political passions had scattered the cartel, economic interests encouraged newspapers to co-operate again.Discovering that their own association had little to offer, particularly in financial questions, one by one the Agrarian newspapers returned to the Newspaper Association during the 1950s.Changes in the association's board undoubtedly helped their return; the hot-headed, conservative seniors like Wäinö Arajärvi and Esko Riekki some of which had been active since 1915 had stepped aside and given room to younger and more liberal leaders.The new leaders of the association also started to have discussions with the Workers' Publishers' Association 1955 about their interest to join the country's biggest and oldest newspaper association.Suomen Sosialidemokraatti was the first newspaper to join in 1958, marking a historical change in the newspaper sector and reflecting more broadly changes in the Finnish society.Other Social Democratic newspapers followed in the years to come. 52The government also revoked price regulations in 1957, which created room for private price agreements, and prices raises.
While in the interwar period European governments had favourable attitudes about cartels, the situation after the war changed.From the 1950s, European governments (including Finland) began gradually to introduce competition legislation. 53The first and relatively lenient competition laws restricting cartels were implemented in Finland in 1957 and 1964. 54Cartel authorities visited the Newspaper Association in 1961 asking about their cartel agreements.First the association board denied that cartel agreements existed, but nevertheless the agreement between the Newspapers Association and the Advertising Agencies' Association, which had been ongoing since the beginning of 1950, was added to the cartel authority's register the following year. 55References to mutually coordinated cover price policy decreased from the association's printed annual reports from 1964 which most likely reflects more the introduction of competition laws rather than vanishing of the newspaper cartel. 56dapting to the new competition laws, the rules of the Newspaper Association were changed in 1962 so that the old wording about the association 'ratifying' cover price levels was changed into 'recommending.' 57Despite the association denying that it had cartel agreements on consumer prices, sources show that it still coordinated the national cover price levels, as it had done since the 1910s.The association recommended to its members that they made an annual 10% increase to prices after each autumn meeting.The association occasionally also settled disputes concerning 'unsound' competition between newspapers.After the mid-1960s, the association gave up on fixed percentage price increases, but advised the provincial competitors to coordinate their prices. 58It was feared that uncoordinated competition would lead to a wave of newspaper deaths, and in 1964 the Newspaper Association applied for an exception from the Finnish cartel authority, Elinkeinovapausneuvosto, to coordinate cover prices.It was not granted. 59The Newspaper Association adjusted to the new regulatory situation and did not publicly coordinate cover prices.
The competition between newspapers changed in the 1970s due to the combination of anti-cartel laws, state subsidies, and anti-inflation measures.The Finnish government used price freezes in 1968-1970, and for about six months in 1974 and in 1976 to control prices and to curb inflation.A tripartite national income policy agreement in 1979 mandated the Newspaper Association and 20 other business associations to recommend voluntary regulation of prices to their members again to curb inflation. 60At the same time, a new competition law in 1973 became more defined about the illegal character of private cartels on consumer goods. 61Advertising price agreements between the Newspaper Association and Advertising Agencies' Association were approved and registered by the Finnish cartel authorities.
In short, the competition between newspapers in the 1970s was regulated, and the Newspaper Association acted as an important coordinator of voluntary and legal competition norms, but as a regulator it was not alone or in charge.The strongest regulator of prices and cartels was the state, and the association became an assistant to various ministries and state authorities in enforcing the competition norms.Cartels became public committee work, until they started fading for good in the 1980s. 62

Conclusion
In this paper, we have discussed a long-term cartel in Finnish newspaper industry.Cartels in the newspaper sector have remained largely unexplored, while other media sectors, such as advertising industry and news agencies have received attention from the scholars.We showed that newspapers can be eager to set up cartels and, like other media sectors, they engage in particularly long collaboration.The Finnish Newspaper Association was founded in 1910 to improve the profitability of the newspaper business through price fixing, and its cartel operated under varying political-economic conditions until the 1970s.We conclude that besides increasing profitability, the aim of the association was to improve the bargaining position with paper mills, advertising agencies, network of retailers, and the government.
In the economic literature, cartels are predominantly identified as institutions that build on commercial rather than political interests.In this article, we showed that political changes in Finnish society had a major impact on the composition of the cartel, for instance, on who were included or excluded.Our results show that the core aims of the FREE PRESS, REGULATED COMPETITION 505 cartel-price fixing and newsprint negotiations-remained unchanged from the 1910s until the 1970s, but the intensity and success of the competition regulation varied over time due to the changing political economy.The options for the Newspaper Association to conduct successful price policy started to decrease gradually in the 1960s because of anti-cartel and anti-inflation regulation introduced by the government.However, the Newspaper Association was not dissolved, but rather became an organisation that combined private and public regulation efforts.
In our view, many factors contributed to the longevity of the Finnish newspaper cartel.One was institutional flexibility and adaptability to changing circumstances.The economics of successful newspaper companies and the characteristics of the industry more broadly also paved way for long cartel collaboration.Successful companies had high sunk costs and the newspaper industry had high barriers of entry as well as low profitability-and these factors tend to encourage cartelisation rather than free competition between companies.
Perhaps the most crucial factor keeping newspaper cartel alive was the cartelisation of the sectors that newspapers were integrally connected with.The paper mills had domestic and international cartels from the 1910s until the 1990s, and the Finnish advertising industry learned to collaborate and coordinate their businesses after the Second World War.In a cartelised environment, it was essential for the newspaper sector also to collaborate to gain a better bargaining position.Alone, most newspapers would have been too weak to negotiate with the mighty newsprint suppliers.
The sources suggest that long-lived, nation-wide cartels between newspapers were not just a Finnish speciality but existed in other countries as well.Even a quick glance at the literature and sources on newspaper cartels in other Nordic countries reveals fascinating similarities and differences in the political, commercial, and regulatory realities of each country.The connections between Nordic newspaper associations invites new research questions, such as transfer of knowledge on business and competition in the Nordic level.Research on other media sectors, such as advertising industry, suggests that Nordic connections were crucial in shaping the business environment and national competition. 63Our research also implies that cartels have been an important, yet neglected, factor in the evolution of a crucial political and economic sector, the newspapers.

TABLE 1
Newspaper associations in Finland in 1953