We consider a model of daily newspapers' competition to test the validity of the so called quot;theory of the circulation spiral.quot; According to it,the interaction between the newspapers and the advertising markets drives the newspaper with the smaller readership into a vicious circle,...

We study a simple model in which two vertically differentiated firms competein prices and mass advertising on an initially uninformedmarket. Consumers differ in their preference for quality. There is an upper bound on prices since consumers cannot spend more on the good than a fixed amount (say...