Competing with Advertising Resources (Preliminary and incomplete) (original) (raw)
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ADVERTISING, COMPETITION AND ENTRY IN MEDIA INDUSTRIES a
J Ind Econ, 2009
This paper presents a model of media competition with free entry when media platforms are financed both from advertising receipts and customers' subscriptions. We establish a relationship between the equilibrium levels of prices, advertising and entry, the welfare maximizing levels and the advertising technology. Under constant or increasing returns to scale in the audience size, we find an excessive level of entry and an insufficient level of advertising. We then extend the analysis along several dimensions: the price as a strategic variable on the market for advertising, free media platforms and the media quality dimension.
Competing with advertising resources
This paper presents a model of media competition with free entry when media operators are financed both from advertisers and viewers. The relation between advertising receipts and sales receipts, which are both complementary and antagonist, is different if media operators impose a price or a quantity to advertisers. Media operators are better off setting an advertising price than an advertising quantity. We establish a relationship between the equilibrium levels (advertising and entry) and the advertising technology. In particular, media operators do not gain by introducing advertising when they impose advertising quantities and when advertising exhibits constant returns to scale in the audience size. Under constant or increasing returns to scale in the audience size, we find an excessive level of entry and an insufficient level of advertising.
Programming and advertising competition in the broadcasting industry
Journal of Economics & …, 2004
We analyze competition between two private television channels that derive their profits from advertising receipts. These profits are shown to be proportional to total population advertising attendance. The channels play a sequential game in which they first select their profiles (program mixes) and then their advertising ratios. We show that these ratios play the same role as prices in usual horizontal differentiation models. We prove that whenever ads' interruptions are costly for viewers the program mixes of the channels never converge but that the niche strategies are less effective and that the channel "profiles" are closer as advertising aversion becomes stronger.
Competition for Viewers and Advertisers in a TV Oligopoly
Journal of Media Economics, 2007
We consider a model of a TV oligopoly where TV channels transmit advertising and viewers dislike such commercials. We show that advertisers make a lower profit the larger the number of TV channels. If TV channels are sufficiently close substitutes, there will be underprovision of advertising relative to social optimum. We also find that the more viewers dislike ads, the more likely it is that welfare is increasing in the number of advertising financed TV channels. A publicly owned TV channel can partly correct market distortions, in some cases by having a larger amount of advertising than private TV channels. It may even have advertising in cases where advertising is wasteful per se.
Price Discrimination and Audience Composition in Advertising-Based Broadcasting
Journal of Media Economics, 2008
Traditionally, media like TV and radio, but also the Internet, have been characterized by free access (by consumers having the necessary hardware), with services supported through advertising revenues. Profitability in these markets depends on the capability of attracting audience. Strategic choices, however, also depend on the relationship with the dual market for advertising services. In this paper, a model is introduced, which has two distinguishing features. First, the multidimensional nature of competition in media markets is acknowledged, through explicit modeling of vertical and horizontal differentiation. Second, the price of advertising depends on the expected audience composition, not simply on its magnitude. It also depends on the broadcasters' capability of effectively price-discriminate among advertising customers. It is found that market equilibria depend on a number of critical factors: the amount and type of price discrimination in advertising, the correlation between formats and audience composition, the relative profitability of the different market segments, and diseconomies of scale in program quality.
Competition in Newspaper and TV Industries; Advertising or Consumer Payment?
It is regularly argued that consumer dislike commercials on TV and other media firms. Nonetheless, most media firms are to a large extent financed by advertising income. A basic question is why media firms choose a source of financing that reduces the value of their product in the end-user market. Why not charge the consumers directly, and avoid product damaging commercials? In this paper we show that this may be due to the fact that competition in advertising prices is weaker than competition in consumer payment. Thereby media firms may rely more on advertising income the higher the competitive pressure. Contrary to much of the existing literature, we further show that competition tends to make media firms invest more in quality.
Specialized advertising media and product market competition
Journal of Economics, 2011
This paper studies the strategic relationship between a specialized communication medium and a product market. To that end, we formulate a model of informative advertising and price competition where the advertising fee is endogenously determined by the interaction between two firms producing a horizontally-differentiated good and a communication platform. We find that (i) when the subscription to the medium is free, the platform asks for high prices for its advertising services, which allows firms to raise their prices to the level where the marginal potential consumer achieves zero utility and (ii) a positive subscription fee generates cross-side externalities between the firms and subscribers, which can increase or decrease the equilibrium advertising fee. In particular, under a positive advertising externality, the platform tends to charge low advertising fees, thus triggering strong price competition between firms. We also show that less product differentiation or a lower consumer valuation of the goods can increase firms' profits, so a strategic connection between the product and the media markets can substantially affect the functioning of a differentiated product market.
The Market for Television Advertising: Model and Evidence
SSRN Electronic Journal, 2000
We provide a model of television advertising based on an explicit characterization of an advertisement's contribution to an advertiser's profits that suggests that each program faces a downward sloping demand for its ad time. Hence Fournier and Martin's (1983) "law of one price" does not hold in our model. We study these contrasting arguments about television advertising by examining the pricing of broadcast network advertising. In conducting this empirical examination we encounter and solve a severe multicollinearity problem. We conclude that the evidence supports the advertising model presented in this paper and demonstrates segmentation between cable and broadcast viewers in the national television advertising market.
2018
In many two-sided markets, platforms use intermediary agents to reach consumers at one side of the market, but in the most recent models of two-sided markets the intermediaries are ignored. The purpose of this paper is to discuss that existence of intermediaries between platform and end-users in two-sided market is one of the factors that influences on the market concentration and price-level. This paper derives suggestions for econometric modeling of demand in a TV-advertising market as a two-sided market with the presence of media sales houses (intermediaries who sell advertising slots of a particular channels). We use panel data on fifteen TV channels in Russia(Yekaterinburg) that spans the period January 2011–October 2016 and present our econometric analysis. The data is particularly interesting as we observe a period of January 2015-March 2015, when the Federal Law of Advertisement has been changed dramatically and market structure changed (for three months the market of TV adv...
The Impact of an Advertising Quota on Public Television
SSRN Electronic Journal, 2000
In this paper we propose a model of competition between a private television channel, financed by advertising, and a public channel, financed by advertising and a transfer of public funds. We study the impact that an advertising quota imposed on the public channel has on the channels and on the viewers' welfare. We show that, in the short term, when program investments are exogenous, the quota hurts the private channel, but benefits viewers. In the longer term, when program investments are endogenous, the introduction of an advertising quota can benefit the private channel if it is high enough, and reduce the viewers' surplus if set too low.