Negotiations and Exclusivity Contracts for Advertising
Exclusive advertising on a given media outlet is usually profitable for an advertiser because consumers are less aware of competing products. However, for such arrangements to exist, media must benefit as well. We examine conditions under which such exclusive advertising contracts benefit both advertisers and media outlets (referred to as ) by illustrating that exclusive equilibria arise in a theoretical model of the media, advertisers, and consumers who participate in both the product and media markets. In the model, stations sell advertising space to advertisers and broadcast advertising messages to consumers. Conditions leading to higher equilibrium levels of advertising can be unprofitable for advertisers because high levels of advertising make consumers better informed and thus lead to fiercer product price competition. As a result, media stations may be less profitable as well because their payoff is determined as a fraction of the advertiser surplus generated in the product market. Stations mitigate this effect by offering advertisers exclusive advertising contracts. With such contracts, consumers are less informed about competing products, yielding higher producer surplus. It is profitable for stations to offer exclusivity when commercial advertising is an important means for advertisers to inform consumers about their products.
Volume (Year): 22 (2003)
Issue (Month): 2 (November)
|Contact details of provider:|| Postal: 7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA|
Web page: http://www.informs.org/
More information through EDIRC
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.:
- Gila E. Fruchter & Shlomo Kalish, 1997. "Closed-Loop Advertising Strategies in a Duopoly," Management Science, INFORMS, vol. 43(1), pages 54-63, January.
- Lal, Rajiv & Villas-Boas, J Miguel, 1996. "Exclusive Dealing and Price Promotions," The Journal of Business, University of Chicago Press, vol. 69(2), pages 159-172, April.
- Prasad A. Naik & Murali K. Mantrala & Alan G. Sawyer, 1998. "Planning Media Schedules in the Presence of Dynamic Advertising Quality," Marketing Science, INFORMS, vol. 17(3), pages 214-235.
- Gene M. Grossman & Carl Shapiro, 1984. "Informative Advertising with Differentiated Products," Review of Economic Studies, Oxford University Press, vol. 51(1), pages 63-81.
- Nils-Henrik M. von der Fehr & Kristin Stevik, 1998.
"Persuasive Advertising and Product Differentiation,"
Southern Economic Journal,
Southern Economic Association, vol. 65(1), pages 113-126, July.
- Von der Fehr, N.H.M. & Stevik, K., 1996. "Persuasive Advertising and Product Differentiation," Memorandum 01/1996, Oslo University, Department of Economics.
- Gila E. Fruchter, 1999. "The Many-Player Advertising Game," Management Science, INFORMS, vol. 45(11), pages 1609-1611, November.
- Esther Gal-Or & Anthony Dukes, 2003. "Minimum Differentiation in Commercial Media Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 12(3), pages 291-325, 09.
- Joydeep Srivastava & Dipankar Chakravarti & Amnon Rapoport, 2000. "Price and Margin Negotiations in Marketing Channels: An Experimental Study of Sequential Bargaining Under One-sided Uncertainty and Opportunity Cost of Delay," Marketing Science, INFORMS, vol. 19(2), pages 163-184, October.
- Devavrat Purohit, 1997. "Dual Distribution Channels: The Competition Between Rental Agencies and Dealers," Marketing Science, INFORMS, vol. 16(3), pages 228-245.
- Daniel P. O'Brien & Greg Shaffer, 1997. "Nonlinear Supply Contracts, Exclusive Dealing, and Equilibrium Market Foreclosure," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(4), pages 755-785, December.
- Shantanu Dutta & Mark Bergen & George John, 1994. "The Governance of Exclusive Territories When Dealers can Bootleg," Marketing Science, INFORMS, vol. 13(1), pages 83-99.
- Häckner, Jonas & Nyberg, Sten, 2000. "Price Competition, Advertising and Media Market Concentration," Research Papers in Economics 2000:3, Stockholm University, Department of Economics.
- Baye, Michael R. & Morgan, John, 2000. "A simple model of advertising and subscription fees," Economics Letters, Elsevier, vol. 69(3), pages 345-351, December.
- Michael R. Baye & John Morgan, 2001. "Information Gatekeepers on the Internet and the Competitiveness of Homogeneous Product Markets," American Economic Review, American Economic Association, vol. 91(3), pages 454-474, June.
- Alvin J. Silk & Ernst R. Berndt, 1993. "Scale and Scope Effects on Advertising Agency Costs," Marketing Science, INFORMS, vol. 12(1), pages 53-72.
- S. Siddarth & Amitava Chattopadhyay, 1998. "To Zap or Not to Zap: A Study of the Determinants of Channel Switching During Commercials," Marketing Science, INFORMS, vol. 17(2), pages 124-138.
When requesting a correction, please mention this item's handle: RePEc:inm:ormksc:v:22:y:2003:i:2:p:222-245. 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: (Mirko Janc)
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.