Two–Sided Markets with Pecuniary and Participation Externalities
The existing literature on "two-sided markets" addresses partici- pation externalities, but so far it has neglected pecuniary externalities between competing platforms. In this paper we build a model that incorporates both externalities. In our setup di®erentiated platforms compete in advertising and o®er consumers a service free of charge (such as a TV program) that is ¯nanced through advertising. We show that advertising can exhibit the properties of a strategic substitute or complement. Surprisingly, there exist cases in which platforms bene¯t from market entry. Moreover, we show that from a welfare point of view perfect competition is not always desirable.
References listed on IDEAS
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- Reisinger, Markus, 2004. "Two-Sided Markets with Negative Externalities," Discussion Papers in Economics 478, University of Munich, Department of Economics.
- Nilssen,T. & Sorgard,L., 2001. "The TV industry : advertising and programming," Memorandum 18/2001, Oslo University, Department of Economics.
- Kind, Hans Jarle & Nilssen, Tore & Sørgard, Lars, 2005. "Advertising on TV: Under- or Overprovision?," Memorandum 15/2005, Oslo University, Department of Economics.
- Peitz, Martin & Valletti, Tommaso M., 2008.
"Content and advertising in the media: Pay-tv versus free-to-air,"
International Journal of Industrial Organization,
Elsevier, vol. 26(4), pages 949-965, July.
- 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.
- Esther Gal-Or & Anthony Dukes, 2006. "On the Profitability of Media Mergers," The Journal of Business, University of Chicago Press, vol. 79(2), pages 489-526, March.
- Simon P. Anderson, 2005. "Regulation of Television advertising," Virginia Economics Online Papers 363, University of Virginia, Department of Economics.
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