Network Effects in the Press and Advertising Industries

Generally, economists interested in network effects analyse these effects when the consumption externalitycreated by the demand for the good is produced inside the industry itself. But it can be conceived that network effects takeplace from one industry to another. This happens when the utility of a good produced in a given industry varies with thesize of the demand for a product produced in another industry. A particularly significant example of this phenomenon isprovided by the interaction between the media and advertising industries. To illustrate this consequences of this two-sidedeffects, we consider an editor who is a monopolist both in the press and advertising markets. In both markets, he facesa continuum of customers. In the press industry, these customers (readers) vary according top their willingness to payfor the newspaper, but also with their attitudes toward advertising: some of them are advertising-lovers while the otherare advertising-averse. On the adverting market, advertisers vary according to their willingness to pay for an ad in thenewspaper, which also depends positively on its readership's size. We characterise the monopoly solution in terms of themonopolist's instruments: the price of the newspaper and the advertising rate.