Some Economics of Echo Chambers

This paper analyzes competition between a media firm providing true information (news) and two “fake news” providers that create echo chambers. Information from the media firm is uncertain but truthful, and consumers enjoy confirmation of their prior beliefs due to cognitive dissonances. We show that, even if real news is more valued than fake news, entry by fake news providers becomes more profitable with the variance of information. Furthermore, a public news provider makes entry for fake news providers harder compared to a profit-maximizing media firm.