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The Media and Advertising: A Tale of Two-Sided Markets

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Author Info
Anderson, Simon P.
Gabszewicz, Jean J.

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Abstract

Media industries are important drivers of popular culture. A large fraction of leisure time is devoted to radio, magazines, newspapers, the Internet, and television (the illustrative example henceforth). Most advertising expenditures are incurred for these media. They are also mainly supported by advertising revenue. Early work stressed possible market failures in program duplication and catering to the Lowest Common Denominator, indicating lack of cultural diversity and quality. The business model for most media industries is underscored by advertisers' demand to reach prospective customers. This business model has important implications for performance in the market since viewer sovereignty is indirect. Viewers are attracted by programming, though they dislike the ads it carries, and advertisers want viewers as potential consumers. The two sides are coordinated by broadcasters (or "platforms") that choose ad levels and program types, and advertising finances the programming. Competition for viewers of the demographics most desired by advertisers implies that programming choices will be biased towards the tastes of those with such demographics. The ability to use subscription pricing may help improve performance by catering to the tastes of those otherwise under-represented, though higher full prices tend to favor broadcasters at the expense of viewers and advertisers. If advertising demand is weak, program equilibrium program selection may be too extreme as broadcasters strive to avoid ruinous subscription price competition, but strong advertising demand may lead to strong competition for viewers and hence minimum differentiation ("la pensee unique"). Markets (such as newspapers) with a high proportion of ad-lovers may be served only by monopoly due to a circulation spiral: advertisers want to place ads in the paper with most readers, but readers want to buy the paper with more ads.

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This chapter was published in: V.A. Ginsburgh & D. Throsby (ed.) , Elsevier, chapter 18, pages 567-614, 2006.

This item is provided by Elsevier in its series Handbook of the Economics of Art and Culture with number 1-18.

Handle: RePEc:eee:artchp:1-18

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This chapter was published in the following book, which is listed on IDEAS:
V.A. Ginsburgh & D. Throsby (ed.), 2006. "Handbook of the Economics of Art and Culture," Handbook of the Economics of Art and Culture, Elsevier, edition 1, volume 1, number 1, December. [Downloadable!] (restricted)
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Z19 - Other Special Topics - - Cultural Economics - - - Other

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  2. Gomes, Orlando, 2006. "The dynamics of television advertising with boundedly rational consumers," MPRA Paper 2847, University Library of Munich, Germany. [Downloadable!]
  3. Jo Reynaerts & Patrick Van Cayseele, 2007. "Complementary Platforms," LICOS Discussion Papers 18607, LICOS - Centre for Institutions and Economic Performance, K.U.Leuven. [Downloadable!]
  4. Hoernig, Steffen & Valletti, Tommaso, 2006. "Mixing Media with Two-Part Tariffs," CEPR Discussion Papers 5437, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  5. Hans Jarle Kind & Tore Nilssen & Lars Sørgard, 2006. "Competition for Viewers and Advertisers in a TV Oligopoly," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  6. Oilver Budzinski & Katharina Wacker, 2007. "The Prohibition of the Proposed Springer-ProSiebenSat.1-Merger: How much Economics in German Merger Control?," Marburg Working Papers on Economics 200704, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung). [Downloadable!]
  7. Steffen Hoernig & Tommaso Valletti, 2006. "Mixing Goods with Two-Part Tariffs," CEIS Research Paper 72, Tor Vergata University, CEIS. [Downloadable!]
    Other versions:
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