Friday, May 14, 2010

Where Are Other Cross Subsidies?

In his article on the future of news, James Fallows discusses the model wherein certain high-yield aspects of newspapers subsidize less profitable aspects. The net is cutting this down:
“Newspapers never made money on ‘news,’” Hal Varian said. “Serious reporting, say from Afghanistan, has simply never paid its way. What paid for newspapers were the automotive sections, real-estate, home-and-garden, travel, or technology, where advertisers could target their ads.” The Internet has been one giant system for stripping away such cross-subsidies. 
So, in which other industries do such cross-subsidies exist? The most obvious one is higher ed. Students and / or their parents pay for some variable combo of signaling, learning, and networking. Yet, colleges and (especially) universities use this money on tons of other things that benefit students only indirectly.

One particularly interesting use of student funds is in supporting the research pursuits of faculty members. To the extent that higher ed is mostly about classroom learning, research support is merely a cross-subsidy and should eventually be cut out by the growth of the internet. But, to the extent that paying to participate in higher ed is mostly about associating with high status professors, supporting faculty research is not a cross-subsidy and should remain despite the internet. Time may tell which factor is more important.