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Advertising Effectiveness, Digital Video Recorders, and Product Market Competition

  • Bikram Ghosh

    ()

    (Moore School of Business, University of South Carolina, Columbia, South Carolina 29208)

  • Axel Stock

    ()

    (College of Business Administration, University of Central Florida, Orlando, Florida 32816)

Registered author(s):

    With increasing fragmentation of media markets and recent advances in technology, loss of advertising effectiveness has been a great concern for marketers. For consumers, the digital video recorder (DVR) offers the possibility to fast-forward through live programming. Whereas the DVR thus benefits consumers by reducing nuisance from commercials, industry observers believe that it may diminish advertisers' profits by rendering commercials ineffective. We use a model of informative advertising to study the effect of DVR penetration on competing advertisers' strategies and profits. We find that the overall effect of DVRs depends on the trade off between loss of advertising effectiveness and reduction in competition between firms. The latter effect arises because DVR penetration may increase the ratio of partially informed to fully informed consumers. We identify conditions under which an increase in DVR penetration counterintuitively leads firms to increase advertising levels and enjoy higher profits. Interestingly, we find that greater DVR penetration is beneficial for firms when the share of DVR owners in the population is above--rather than below--a threshold level. We also study the impact of different fast-forwarding ("zipping") behaviors on product market competition.

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    File URL: http://dx.doi.org/10.1287/mksc.1090.0544
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    Article provided by INFORMS in its journal Marketing Science.

    Volume (Year): 29 (2010)
    Issue (Month): 4 (07-08)
    Pages: 639-649

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    Handle: RePEc:inm:ormksc:v:29:y:2010:i:4:p:639-649
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    1. Anthony Dukes & Esther Gal–Or, 2003. "Negotiations and Exclusivity Contracts for Advertising," Marketing Science, INFORMS, vol. 22(2), pages 222-245, November.
    2. 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.
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    5. Esther Gal-Or & Mordechai Gal-Or, 2005. "Customized Advertising via a Common Media Distributor," Marketing Science, INFORMS, vol. 24(2), pages 241-253, July.
    6. Kenneth C. Wilbur & Yi Zhu, 2009. "Click Fraud," Marketing Science, INFORMS, vol. 28(2), pages 293-308, 03-04.
    7. David A. Soberman, 2004. "Research Note: Additional Learning and Implications on the Role of Informative Advertising," Management Science, INFORMS, vol. 50(12), pages 1744-1750, December.
    8. 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.
    9. Eaton, Jonathan & Grossman, Gene M, 1986. "The Provision of Information as Marketing Strategy," Oxford Economic Papers, Oxford University Press, vol. 38(0), pages 166-83, Suppl. No.
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