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 suffciently 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, Department of Business Administration (IBW) in its series Working Papers with number 315.
Length: 26 pages
Date of creation: Jan 2012
Date of revision:
Manufacturing network; Manufacturing plant; Global operations management; Lead factory; Knowledge transfer;
Other versions of this item:
- Helmut Dietl & Markus Lang & Panlang Lin, 2012. "The Effects of Introducing Advertising in Pay TV: A Model of Asymmetric Competition between Pay TV and Free TV," Working Papers 0153, University of Zurich, Institute for Strategy and Business Economics (ISU).
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-10-13 (All new papers)
- NEP-COM-2012-10-13 (Industrial Competition)
- NEP-CUL-2012-10-13 (Cultural Economics)
- NEP-MKT-2012-10-13 (Marketing)
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