Media, fake news, and debunking

We construct a Hotelling-type model of two media providers, each of whom can issue fake and/or real news and each of whom can invest in the debunking of their rival's fake news. The model assumes that consumers have an innate preference for one provider or the other and value real news. However, that valuation varies according to their bias favoring one provider or the other. We demonstrate a unique subgame perfect Nash equilibrium in which only one firm issues fake news and we show, in this setting, that increased polarization of consumers - represented by a wider distribution - increases the prevalence of both fake news and debunking expenditures and is welfare reducing. We also show, inter alia, that a stronger preference by consumers for their preferred provider lowers both fake news and debunking. Finally, we compare monopoly and duopoly market structures in terms of "fake news" provision and show that a public news provider can be welfare improving.