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How Effective are Advertising Bans? On the Demand for Quality in Two-Sided Media Markets

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  • Tanja Greiner
  • Marco Sahm
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    Abstract

    We study a two-sided markets model of two competing television stations that offer content of differentiated quality to ad-averse consumers and advertising space to firms. As all consumers prefer high over low quality content, competition for viewers is vertical. By contrast, competition for advertisers is horizontal, taking into account the firms’ targeted advertising motive. We analyze the impact of both the strength of mutual externalities and advertisement regulation policies on the viewers’ equilibrium demand for high quality content. We find that, although consumers dislike advertisements, an advertising ban in the high quality medium reduces its viewer market share and thereby the equilibrium reception of high quality content.

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    File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2011/wp-cesifo-2011-07/cesifo1_wp3524.pdf
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    Bibliographic Info

    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3524.

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    Date of creation: 2011
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    Handle: RePEc:ces:ceswps:_3524

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    Related research

    Keywords: horizontal and vertical product differentiation; two-sided externalities; advertising ban;

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    References

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    1. ANDERSON, Simon P. & GABSZEWICZ, Jean J., 2005. "The media and advertising : a tale of two-sided markets," CORE Discussion Papers 2005088, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. Hans Jarle Kind & Frank Stähler, 2010. "Market Shares in Two-Sided Media Industries," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 166(2), pages 205-211, June.
    3. Sendhil Mullainathan & Andrei Shleifer, 2002. "Media Bias," NBER Working Papers 9295, National Bureau of Economic Research, Inc.
    4. Blecher, Evan, 2008. "The impact of tobacco advertising bans on consumption in developing countries," Journal of Health Economics, Elsevier, vol. 27(4), pages 930-942, July.
    5. Frank, Mark W., 2008. "Media substitution in advertising: A spirited case study," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 308-326, January.
    6. Victor Ginsburgh & David Throsby, 2006. "Handbook of the economics of art and culture," ULB Institutional Repository 2013/1673, ULB -- Universite Libre de Bruxelles.
    7. Rochet, Jean-Charles & Tirole, Jean, 2003. "Platform Competition in Two-Sided Markets," IDEI Working Papers 152, Institut d'Économie Industrielle (IDEI), Toulouse.
    8. Jorge Ferrando & Jean J. Gabszewicz & Didier Laussel & Nathalie Sonnac, 2008. "Intermarket network externalities and competition: An application to the media industry," International Journal of Economic Theory, The International Society for Economic Theory, vol. 4(3), pages 357-379.
    9. Esther Gal-Or & Anthony Dukes, 2003. "Minimum Differentiation in Commercial Media Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 12(3), pages 291-325, 09.
    10. Hans Jarle Kind & Tore Nilssen & Lars Sørgard, 2006. "Competition for Viewers and Advertisers in a TV Oligopoly," CESifo Working Paper Series 1862, CESifo Group Munich.
    11. Peitz, Martin & Valletti, Tommaso M., 2008. "Content and advertising in the media: Pay-tv versus free-to-air," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 949-965, July.
    12. Kenneth C. Wilbur, 2008. "A Two-Sided, Empirical Model of Television Advertising and Viewing Markets," Marketing Science, INFORMS, vol. 27(3), pages 356-378, 05-06.
    13. Christos Kotsogiannis & Konstantinos Serfes, 2008. "Public Goods and Tax Competition in a Two-Sided Market," Discussion Papers 0808, Exeter University, Department of Economics.
    14. Caillaud, Bernard & Jullien, Bruno, 2001. "Competing cybermediaries," European Economic Review, Elsevier, vol. 45(4-6), pages 797-808, May.
    15. Saffer, Henry & Chaloupka, Frank, 2000. "The effect of tobacco advertising bans on tobacco consumption," Journal of Health Economics, Elsevier, vol. 19(6), pages 1117-1137, November.
    16. Anthony Dukes, 2004. "The Adverstising Market in a Product Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 52(3), pages 327-348, 09.
    17. Jon P. Nelson, 1999. "Broadcast Advertising and U.S. Demand for Alcoholic Beverages," Southern Economic Journal, Southern Economic Association, vol. 65(4), pages 774-790, April.
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