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Content vs. Advertising: The Impact of Competition on Media Firm Strategy

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Author Info

  • David Godes

    ()
    (Harvard Business School, Soldiers Field, Boston, Massachusetts 02163)

  • Elie Ofek

    ()
    (Harvard Business School, Soldiers Field, Boston, Massachusetts 02163)

  • Miklos Sarvary

    ()
    (INSEAD, 77305 Fontainebleau, France)

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    Abstract

    Media firms compete in two connected markets. They face rivalry for the sale of content to consumers, and at the same time, they compete for advertisers seeking access to the attention of these consumers. We explore the implications of such two-sided competition on the actions and source of profits of media firms. One main conclusion we reach is that media firms may charge higher content prices in a duopoly than in a monopoly. This happens because competition for advertisers can reduce the return per customer impression from the ad market, making each firm less willing to underprice content to increase demand. Greater competitive intensity may thus increase content profits and decrease ad profits. These findings are in sharp contrast to those in a regular one-sided product market, in which competition typically lowers product prices and profits. We extend the framework to examine competition across different media (e.g., between magazines and cable TV) and show that firms in a duopolistic medium may benefit from more intense competition from a monopolist in another medium. We characterize the conditions for each firm in the duopoly medium to bundle more ads and earn greater total profits than the rival firm in the monopoly medium.

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    File URL: http://dx.doi.org/10.1287/mksc.1080.0390
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    Bibliographic Info

    Article provided by INFORMS in its journal Marketing Science.

    Volume (Year): 28 (2009)
    Issue (Month): 1 (01-02)
    Pages: 20-35

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    Handle: RePEc:inm:ormksc:v:28:y:2009:i:1:p:20-35

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    Related research

    Keywords: media; advertising; two-sided markets; competitive strategy; game theory;

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    Cited by:
    1. Hans Jarle Kind & Tore Nilssen & Lars Sørgard, 2009. "Business Models for Media Firms: Does Competition Matter for How They Raise Revenue?," Marketing Science, INFORMS, vol. 28(6), pages 1112-1128, 11-12.
    2. Reisinger, Markus, 2012. "Platform competition for advertisers and users in media markets," International Journal of Industrial Organization, Elsevier, vol. 30(2), pages 243-252.
    3. Daniel Halbheer & Florian Stahl & Oded Koenigsberg & Donald R. Lehmann, 2013. "Digital Content Strategies," Working Papers 329, University of Zurich, Department of Business Administration (IBW).
    4. Anderson, Simon P. & Foros, Øystein & Kind, Hans Jarle, 2012. "Product quality, competition, and multi-purchasing," Discussion Papers 2012/9, Department of Business and Management Science, Norwegian School of Economics.
    5. Robert Seamans & Feng Zhu, 2010. "Technology Shocks in Multi-Sided Markets: The Impact of Craigslist on Local Newspapers," Working Papers 10-11, NET Institute.
    6. Huang, Jian & Leng, Mingming & Liang, Liping, 2012. "Recent developments in dynamic advertising research," European Journal of Operational Research, Elsevier, vol. 220(3), pages 591-609.

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