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Paying to remove advertisements

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  • Tåg, Joacim

Abstract

Media firms sometimes allow consumers to pay to remove advertisements from an ad-based product. We formally examine an ad-based monopolist's incentives to introduce this option. When deciding whether or not to introduce the option to pay, the monopolist compares the potential direct revenues from consumers who pay, with the lost advertising revenues resulting from the subsequent ad removal. If the pay alternative is introduced, the media firm increases advertising quantity to make the option to pay more attractive. This outcome hurts consumers but benefits the media firm and the advertisers. Total welfare may increase or decrease. Perhaps surprisingly, more annoying advertisements may lead to an increase in advertising quantity.

Suggested Citation

  • Tåg, Joacim, 2009. "Paying to remove advertisements," Information Economics and Policy, Elsevier, vol. 21(4), pages 245-252, November.
  • Handle: RePEc:eee:iepoli:v:21:y:2009:i:4:p:245-252
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    References listed on IDEAS

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    Cited by:

    1. Simon P. Anderson & Joshua S. Gans, 2011. "Platform Siphoning: Ad-Avoidance and Media Content," American Economic Journal: Microeconomics, American Economic Association, vol. 3(4), pages 1-34, November.
    2. Dietl, Helmut & Lang, Markus & Lin, Panlang, 2013. "Advertising pricing models in media markets: Lump-sum versus per-consumer charges," Information Economics and Policy, Elsevier, vol. 25(4), pages 257-271.

    More about this item

    Keywords

    Advertising Damaged goods Media markets Price discrimination Two-sided markets Vertical differentiation;

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L59 - Industrial Organization - - Regulation and Industrial Policy - - - Other
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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