The Effects of Introducing Advertising in Pay TV: A Model of Asymmetric Competition between Pay TV and Free TV
AbstractThis paper develops a theoretical model of asymmetric competition between a pay TV and a free TV broadcaster. Our model shows that the pay TV broadcaster has incentives to place advertising on its channel if the marginal return on advertising exceeds the viewers' disutility from advertising. In this case, however, the pay TV advertising level is always below the corresponding level on free TV. The pay TV advertising level can increase with a higher viewer disutility from advertising but the pay TV channel will never attract a larger viewership than the free TV channel. Furthermore, we show that introducing advertising on pay TV induces a decrease of the subscription fees on this channel and a decrease in the advertising level of the free TV channel. Moreover, pay TV viewer demand can increase if the pay TV broadcaster places advertising on its channel. If the viewer disutility of advertising is sufficiently large, aggregate broadcaster profits increase through the introduction of advertising in pay TV, while aggregate consumer surplus always increases.
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Bibliographic InfoPaper provided by University of Zurich, Institute for Strategy and Business Economics (ISU) in its series Working Papers with number 0153.
Length: 25 pages
Date of creation: Jan 2012
Date of revision:
Asymmetric competition; advertising; television broadcasting; media;
Other versions of this item:
- Helmut M. Dietl & Markus Lang & Pannlang Lin, 2012. "The Effects of Introducing Advertising in Pay TV: A Model of Asymmetric Competition between Pay TV and Free TV," Working Papers 315, University of Zurich, Department of Business Administration (IBW).
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
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