Social networks and the demand for news

Economic research has documented a robust, positive relationship between media consumption among minority individuals and the size of the minority population in local markets. The theoretical mechanism behind these “preference externaltities” has been understood to be the supply incentive to cater to large groups when fixed costs or other scale economies limit the number of viable products in a local market. We demonstrate that the supply-side mechanism is incomplete: the relationship holds not just for local but also national news outlets. We extend the concept of preference externalities to the demand side, establishing a relationship between the racial composition of local communities and the tendency to seek and share information on online social networks. Using data from a sample of 35,997 internet households and a sample of 11,479 Twitter users, we show that a larger local black population is associated with both larger network size and higher utilization for individual black Twitter users relative to white Twitter users and vice versa. Our results suggest that digitization can exacerbate inequality in news consumption, but also that policies to widen broadband access might narrow the gap.