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Advertising, Competition and Entry in Media Industries

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  • Crampes, Claude
  • Haritchabalet, Carole
  • Jullien, Bruno

Abstract

This paper presents a model of media competition with free entry when media operators are financed both from advertisers and customers. The relation between advertising receipts and sales receipts, which are both complementary and antagonist, is different if media operators impose a price or a quantity to advertisers. When consumers dislike advertising, media operators are better off setting an advertising price than an advertising quantity. We establish a relationship between the equilibrium levels (advertising and entry) and the advertising technology. In particular, media operators’ profit is not affected by the introduction of advertising when they impose advertising quantities and when advertising exhibits constant returns to scale in the audience size. Under constant or increasing returns to scale in the audience size, we find an excessive level of entry and an insufficient level of advertising.

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Bibliographic Info

Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 374.

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Date of creation: Dec 2006
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Publication status: Published in The Journal of Industrial Economics, vol.�57, n°1, mars 2009, p.�7-31.
Handle: RePEc:ide:wpaper:5015

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  1. Caillaud, Bernard & Jullien, Bruno, 2001. "Competing cybermediaries," European Economic Review, Elsevier, vol. 45(4-6), pages 797-808, May.
  2. GABSZEWICZ, Jean J. & LAUSSEL, Didier & SONNAC, Nathalie, 2000. "TV-broadcasting competition and advertising," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2000006, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Jean-Charles Rochet & Jean Tirole, 2003. "Platform Competition in Two-Sided Markets," Journal of the European Economic Association, MIT Press, MIT Press, vol. 1(4), pages 990-1029, 06.
  4. GABSZEWICZ, Jean J. & LAUSSEL, Didier & SONNAC, Nathalie, . "Press advertising and the ascent of the `Pensée Unique'," CORE Discussion Papers RP -1512, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. 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.
  6. Simon P. Anderson & Stephen Coate, 2005. "Market Provision of Broadcasting: A Welfare Analysis," Review of Economic Studies, Oxford University Press, vol. 72(4), pages 947-972.
  7. 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.
  8. Nilssen, Tore & Sørgard, Lars, 2000. "TV Advertising, Program Quality, and Product-Market Oligopoly," Competition Policy Center, Working Paper Series, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley qt2zp943hj, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  9. repec:fth:calaec:6-00 is not listed on IDEAS
  10. Reisinger, Markus, 2004. "Two-Sided Markets with Negative Externalities," Discussion Papers in Economics 478, University of Munich, Department of Economics.
  11. Jorge A, Ferrando & Jean J, Gabszewicz & Didier Laussel & Nathalie Sonnac, 2004. "Two-Sided Network Effects and Competition : An Application to Media Industries," Working Papers, Centre de Recherche en Economie et Statistique 2004-09, Centre de Recherche en Economie et Statistique.
  12. Bruno Jullien, 2004. "Two-Sided Markets and Electronic Intermediaries," CESifo Working Paper Series 1345, CESifo Group Munich.
  13. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  14. Häckner, Jonas & Nyberg, Sten, 2000. "Price Competition, Advertising and Media Market Concentration," Research Papers in Economics, Stockholm University, Department of Economics 2000:3, Stockholm University, Department of Economics.
  15. Peitz, Martin & Valletti, Tommaso, 2004. "Content and Advertising in the Media: Pay-TV versus Free-To-Air," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4771, C.E.P.R. Discussion Papers.
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