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Paying to Remove Advertisements

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  • Tåg, Joacim

    ()
    (Research Institute of Industrial Economics (IFN))

Abstract

Media firms sometimes allow consumers to pay to remove advertisements from an advertisement-based product. We formally examine an ad-based monopolist's incentives to introduce this option. When deciding whether to introduce the option to pay, the monopolist compares the potential direct revenues from consumers with lost advertising revenues from not intermediating those consumers to advertisers. If the option is introduced, the media firm increases advertising quantity to make the option to pay more attractive. This hurts consumers, but benefits the media firm and advertisers. Total welfare may increase or decrease. Perhaps surprisingly, more annoying advertisements may lead to an increase in advertising quantity.

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Bibliographic Info

Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 789.

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Length: 15 pages
Date of creation: 13 Feb 2009
Date of revision:
Publication status: Published in Information Economics and Policy, 2009, pages 245-252.
Handle: RePEc:hhs:iuiwop:0789

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Keywords: Advertising; Damaged goods; Media markets; Price discrimination; Two-sided markets; Vertical differentiation;

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References

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  1. Kyle Bagwell, 2005. "The Economic Analysis of Advertising," Discussion Papers 0506-01, Columbia University, Department of Economics.
  2. Rochet, Jean-Charles & Tirole, Jean, 2003. "Platform Competition in Two-Sided Markets," IDEI Working Papers 152, Institut d'Économie Industrielle (IDEI), Toulouse.
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  4. Hansen, Claus Thustrup & Kyhl, Soren, 2001. "Pay-per-view broadcasting of outstanding events: consequences of a ban," International Journal of Industrial Organization, Elsevier, vol. 19(3-4), pages 589-609, March.
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  6. GABSZEWICZ, Jean J. & LAUSSEL, Didier & SONNAC, Nathalie, . "Programming and advertising competition in the broadcasting industry," CORE Discussion Papers RP -1873, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Simon P. Anderson & Stephen Coate, 2003. "Market Provision of Broadcasting: A Welfare Analysis," Virginia Economics Online Papers 358, University of Virginia, Department of Economics.
  8. Crampes, Claude & Haritchabalet, Carole & Jullien, Bruno, 2006. "Advertising, Competition and Entry in Media Industries," IDEI Working Papers 374, Institut d'Économie Industrielle (IDEI), Toulouse.
  9. Chiang, Raymond & Spatt, Chester S, 1982. "Imperfect Price Discrimination and Welfare," Review of Economic Studies, Wiley Blackwell, vol. 49(2), pages 155-81, April.
  10. Prasad, A. & Mahajan, V. & Bronnenberg, B.J.J.A.M., 2003. "Advertising versus pay-per-view in electronic media," Open Access publications from Tilburg University urn:nbn:nl:ui:12-332538, Tilburg University.
  11. Holden, Steinar, 1993. "Network or pay-per-view? : A welfare analysis," Economics Letters, Elsevier, vol. 43(1), pages 59-64.
  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.
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  14. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
  15. Caillaud, Bernard & Jullien, Bruno, 2003. " Chicken & Egg: Competition among Intermediation Service Providers," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 309-28, Summer.
  16. Salop, Steven, 1977. "The Noisy Monopolist: Imperfect Information, Price Dispersion and Price Discrimination," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 393-406, October.
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Cited by:
  1. Helmut Dietl & Markus Lang & Panlang Lin, 2012. "Advertising Pricing Models in Media Markets: Lump-Sum versus Per-Consumer Charges," Working Papers 0157, University of Zurich, Institute for Strategy and Business Economics (ISU).
  2. Anderson, Simon P. & Gans, Joshua, 2010. "Platform Siphoning: Ad-Avoidance and Media Content," CEPR Discussion Papers 7729, C.E.P.R. Discussion Papers.

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