Advanced Search
MyIDEAS: Login

Advertising Pricing Models in Media Markets: Lump-Sum versus Per-Consumer Charges

Contents:

Author Info

  • Helmut Dietl

    ()
    (Department of Business Administration, University of Zurich)

  • Markus Lang

    ()
    (Department of Business Administration, University of Zurich)

  • Panlang Lin

    ()
    (Department of Business Administration, University of Zurich)

Abstract

This paper develops a model of asymmetric competition between a pay and a free media platform. The pay media platform generates revenues from media consumers through subscription fees, while the free media platform generates revenues from charging advertisers either on a lump-sum basis (regime A) or on a per-consumer basis (regime B). We show that the free platform produces a higher advertising level and attracts more consumers in regime A than B although advertisers must pay more for ads and consumers dislike ads. Moreover,\ the pay media platform faces higher subscription fees and lower consumer demand in regime A than B. Compared to regime B, the profit of the free (pay) media platform is higher (lower) in regime A, while aggregate profits are higher only if the consumers' disutility from ads is sufficiently low. In addition, advertisers are better off in regime A than B, while the opposite is true for the media consumers. Finally, in small media markets, social welfare is lower in regime A than B, while this is true in large media markets only if the media consumers' disutility from advertising is sufficiently high.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://repec.business.uzh.ch/RePEc/iso/ISU_WPS/157_ISU_full.pdf
Download Restriction: no

Bibliographic Info

Paper provided by University of Zurich, Institute for Strategy and Business Economics (ISU) in its series Working Papers with number 0157.

as in new window
Length: 27 pages
Date of creation: May 2012
Date of revision:
Handle: RePEc:iso:wpaper:0157

Contact details of provider:
Postal: Plattenstrasse 14, CH-8032 Zürich
Phone: ++41 1 634 29 27
Fax: ++41 1 634 43 48
Email:
Web page: http://www.isu.uzh.ch
More information through EDIRC

Related research

Keywords: Advertising; media platform; two-sided market; lump-sum charge; per-consumer charge; asymmetric competition;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Tåg, Joacim, 2008. "Open Versus Closed Platforms," Working Paper Series 747, Research Institute of Industrial Economics, revised 28 Aug 2008.
  2. 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).
  3. repec:rje:randje:v:37:y:2006:3:p:720-737 is not listed on IDEAS
  4. Hans Jarle Kind & Tore Nilssen & Lars Sørgard, 2009. "Business Models for Media Firms: Does Competition Matter for How They Raise Revenue?," Marketing Science, INFORMS, vol. 28(6), pages 1112-1128, 11-12.
  5. Ramon Casadesus-Masanell & Feng Zhu, 2010. "Strategies to Fight Ad-Sponsored Rivals," Management Science, INFORMS, vol. 56(9), pages 1484-1499, September.
  6. Tåg, Joacim, 2009. "Paying to Remove Advertisements," Working Paper Series 789, Research Institute of Industrial Economics.
  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. BELLEFLAMME, Paul & TOULEMONDE, Eric, . "Negative intra-group externalities in two-sided markets," CORE Discussion Papers RP -2119, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. Kaiser, Ulrich & Song, Minjae, 2009. "Do media consumers really dislike advertising? An empirical assessment of the role of advertising in print media markets," International Journal of Industrial Organization, Elsevier, vol. 27(2), pages 292-301, March.
  10. Economides, Nicholas & Tåg, Joacim, 2008. "Network Neutrality on the Internet: A Two-sided Market Analysis," Working Paper Series 727, Research Institute of Industrial Economics, revised 09 Nov 2011.
  11. Choi, Jay Pil, 2006. "Broadcast competition and advertising with free entry: Subscription vs. free-to-air," Information Economics and Policy, Elsevier, vol. 18(2), pages 181-196, June.
  12. repec:rje:randje:v:37:y:2006:3:p:668-691 is not listed on IDEAS
  13. 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).
  14. Hans Jarle Kind & Tore Nilssen & Lars S�rgard, 2007. "Competition for Viewers and Advertisers in a TV Oligopoly," Journal of Media Economics, Taylor & Francis Journals, vol. 20(3), pages 211-233.
  15. Jean-Charles Rochet & Jean Tirole, 2003. "Platform Competition in Two-Sided Markets," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 990-1029, 06.
  16. Marc Rysman, 2004. "Competition Between Networks: A�Study of the Market for Yellow�Pages," Review of Economic Studies, Wiley Blackwell, vol. 71(2), pages 483-512, 04.
  17. Claude Crampes & Carole Haritchabalet & Bruno Jullien, 2005. "Advertising, Competition and Entry in Media Industries," CESifo Working Paper Series 1591, CESifo Group Munich.
  18. 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.
  19. 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.
  20. Claude Crampes & Carole Haritchabalet & Bruno Jullien, 2009. "ADVERTISING, COMPETITION AND ENTRY IN MEDIA INDUSTRIES -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 57(1), pages 7-31, 03.
  21. 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).
  22. Kaiser, Ulrich & Wright, Julian, 2006. "Price structure in two-sided markets: Evidence from the magazine industry," International Journal of Industrial Organization, Elsevier, vol. 24(1), pages 1-28, January.
  23. 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).
  24. Peitz, Martin & Valletti, Tommaso, 2004. "Content and Advertising in the Media: Pay-TV versus Free-To-Air," CEPR Discussion Papers 4771, C.E.P.R. Discussion Papers.
  25. E. Glen Weyl, 2010. "A Price Theory of Multi-sided Platforms," American Economic Review, American Economic Association, vol. 100(4), pages 1642-72, September.
  26. Lin Panlang, 2011. "Market Provision of Program Quality in the Television Broadcasting Industry," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-22, March.
  27. Marc Rysman, 2004. "Competition Between Networks: A Study of the Market for Yellow Pages," Review of Economic Studies, Oxford University Press, vol. 71(2), pages 483-512.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:iso:wpaper:0157. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (IBW IT).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.