Platform Competition for Advertisers and Users in Media Markets

This paper analyzes a two-sided market model in which platforms compete for advertisers and users. Platforms are differentiated from the users' perspective but are homogenous for advertisers. I show that, although there is Bertrand competition for advertisers, platforms obtain positive margins in the advertising market. In addition, platforms' profits can increase in the users' nuisance costs of advertising. As a general insight, I obtain that factors affecting competition in the user market in a well-known direction without externalities now have opposing effects due to competition in the advertiser market. The model can also explain why private TV platforms benefit if their public rivals are regulated to advertise less—a result at odds with models in which there is no competition for advertisers.

[1]  E. Gal‐Or,et al.  The Impact of Advertising on Media Bias , 2012 .

[2]  Hans Jarle Kind,et al.  Business Models for Media Firms: Does Competition Matter for How They Raise Revenue? , 2009, Mark. Sci..

[3]  Miklos Sarvary,et al.  Content vs. Advertising: The Impact of Competition on Media Firm Strategy , 2009, Mark. Sci..

[4]  Jean Jaskold Gabszewicz,et al.  Intermarket network externalities and competition : an application to the media industry , 2008 .

[5]  Kenneth C. Wilbur.  A Two-Sided, Empirical Model of Television Advertising and Viewing Markets , 2008, Mark. Sci..

[6]  P. Klemperer,et al.  Chapter 31 Coordination and Lock-In: Competition with Switching Costs and Network Effects , 2007 .

[7]  Lars Stole.  Price Discrimination and Competition , 2007 .

[8]  Hans Jarle Kind,et al.  Competition for Viewers and Advertisers in a TV Oligopoly , 2006, SSRN Electronic Journal.

[9]  V. Ginsburgh,et al.  Handbook of the Economics of the Art and Culture , 2006 .

[10]  J. Rochet,et al.  Two-sided markets: a progress report , 2006 .

[11]  Ludwig Ressner,et al.  Two-Sided Markets with Pecuniary and Participation Externalities , 2006, SSRN Electronic Journal.

[12]  Jay Pil Choi.  Broadcast competition and advertising with free entry: Subscription vs. free-to-air , 2006, Inf. Econ. Policy.

[13]  P. Klemperer,et al.  Coordination and Lock-In: Competition with Switching Costs and Network Effects , 2006 .

[14]  Anthony J. Dukes,et al.  On the Profitability of Media Mergers , 2006 .

[15]  Ralf Dewenter.  Two-sided markets , 2006 .

[16]  Ulrich Kaiser,et al.  Price structure in two-sided markets: Evidence from the magazine industry , 2006 .

[17]  M. Armstrong.  Recent developments in the economics of price discrimination , 2006 .

[18]  Bruno Jullien,et al.  Advertising, Competition and Entry in Media Industries , 2005 .

[19]  Simon P. Anderson,et al.  The Media and Advertising: A Tale of Two-Sided Markets , 2005 .

[20]  M. Armstrong.  Competition in Two-Sided Markets ¤ , 2005 .

[21]  Chang-Hoan Cho,et al.  WHY DO PEOPLE AVOID ADVERTISING ON THE INTERNET? , 2004 .

[22]  T. Valletti,et al.  Content and Advertising in the Media: Pay-Tv Versus Free-to-Air , 2004 .

[23]  M. Armstrong,et al.  Two-sided Markets, Competitive Bottlenecks and Exclusive Contracts , 2004 .

[24]  Didier Laussel,et al.  Programming and Advertising Competition in the Broadcasting Industry , 2004 .

[25]  A Theory of Broadcast Media Concentration and Commercial Advertising , 2004 .

[26]  David Strömberg.  Mass Media Competition, Political Competition, and Public Policy , 2004 .

[27]  Simon P. Anderson,et al.  Market Provision of Broadcasting: A Welfare Analysis ∗ , 2003 .

[28]  B. Caillaud,et al.  Chicken & Egg: Competition Among Intermediation Service Providers , 2003 .

[29]  Anthony J. Dukes,et al.  Negotiations and Exclusivity Contracts for Advertising , 2003 .

[30]  J. Rochet,et al.  Platform competition in two sided markets , 2003 .

[31]  Louisa Ha,et al.  Does Advertising Clutter Have Diminishing and Negative Returns , 1997 .

[32]  André de Palma,et al.  Discrete Choice Theory of Product Differentiation , 1995 .

[33]  C. Shapiro,et al.  Systems Competition and Network Effects , 1994 .

[34]  Sam Peltzman,et al.  The Handbook of Industrial Organization , 1991, Journal of Political Economy.

[35]  N. Piercy.  The Marketing Budgeting Process: Marketing Management Implications , 1987 .

[36]  Eli M. Noam,et al.  Video media competition : regulation, economics, and technology , 1985 .

[37]  John D. C. Little,et al.  The Advisor Project: A Study of Industrial Marketing Budgets , 1979 .

[38]  Bruce M. Owen,et al.  Television Programming, Monopolistic Competition, and Welfare , 1977 .