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Market Provision of Program Quality in the Television Broadcasting Industry

Listed author(s):
  • Lin Panlang

    ()

    (University of Zurich)

This paper uses a simple model of duopoly competition to study the market provision of program quality offered by television broadcasters under three different regimes. In regime 1, two broadcasters are financed only with subscription fees (i.e., fee-based or pay TV). In regime 2, the two broadcasters generate their revenues only from advertising (i.e., free TV). In regime 3, one pay TV broadcaster competes with one free TV broadcaster. We show that the broadcasters in regime 3 (but not in regimes 1 and 2) vertically differentiate their channel programs if, for a given level of advertising market profitability, viewers strongly or weakly dislike the presence of advertising. In such cases, although the two pay TV broadcasters in regime 1 will unambiguously offer higher or lower quality programming than the two free TV broadcasters under regime 2, it is not clear which broadcaster will provide higher or lower program quality in regime 3 because this depends on the degree of horizontal differentiation between the channel programs. However, the levels of quality offered under regimes 1 and 2 fall between the quality levels offered by the two broadcasters in regime 3.

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Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 11 (2011)
Issue (Month): 1 (March)
Pages: 1-22

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Handle: RePEc:bpj:bejeap:v:11:y:2011:i:1:n:17
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References listed on IDEAS
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  1. 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.
  2. Yasuo Sanjo, 2007. "Hotelling's Location Model with Quality Choice in Mixed Duopoly," Economics Bulletin, AccessEcon, vol. 18(2), pages 1-11.
  3. 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.
  4. 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.
  5. 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.
  6. BELLEFLAMME, Paul & TOULEMONDE, Eric, 2007. "Negative intra-group externalities in two-sided markets," CORE Discussion Papers 2007039, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. repec:rje:randje:v:37:y:2006:3:p:720-737 is not listed on IDEAS
  8. 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.
  9. Wright Julian, 2004. "One-sided Logic in Two-sided Markets," Review of Network Economics, De Gruyter, vol. 3(1), pages 1-21, March.
  10. Rochet, Jean-Charles & Tirole, Jean, 2003. "Platform Competition in Two-Sided Markets," IDEI Working Papers 152, Institut d'Économie Industrielle (IDEI), Toulouse.
  11. Marc Rysman, 2009. "The Economics of Two-Sided Markets," Journal of Economic Perspectives, American Economic Association, vol. 23(3), pages 125-143, Summer.
  12. Jack H. Beebe, 1977. "Institutional Structure and Program Choices in Television Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 91(1), pages 15-37.
  13. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-1150, September.
  14. GABSZEWICZ, Jean J. & LAUSSEL, Didier & SONNAC, Nathalie, "undated". "Press advertising and the political differentiation of newspapers," CORE Discussion Papers RP 1561, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  15. repec:ebl:ecbull:v:18:y:2007:i:2:p:1-11 is not listed on IDEAS
  16. Michael Spence & Bruce Owen, 1977. "Television Programming, Monopolistic Competition, and Welfare," The Quarterly Journal of Economics, Oxford University Press, vol. 91(1), pages 103-126.
  17. 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.
  18. Peter O. Steiner, 1952. "Program Patterns and Preferences, and the Workability of Competition in Radio Broadcasting," The Quarterly Journal of Economics, Oxford University Press, vol. 66(2), pages 194-223.
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