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The advertising-financed business model in two-sided media markets

Author

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  • Simon P. Anderson

    (University of Virginia [Charlottesville])

  • Bruno Jullien

    (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

This chapter focuses on the economic mechanisms at work in recent models of advertising finance in media markets developed around the concept of two-sided markets. The objective is to highlight new and original insights from this approach, and to clarify the conceptual aspects. The chapter first develops a canonical model of two-sided markets for advertising, where platforms deliver content to consumers and resell their "attention" to advertisers. A key distinction is drawn between free media and pay media, where the former result from the combination of valuable consumer attention and low ad-nuisance cost. The first part discusses various conceptual issues such as equilibrium concepts and the nature of inefficiencies in advertising markets, and concrete issues such as congestion and second-degree discrimination. The second part is devoted to recent contributions on issues arising when consumers patronize multiple platforms. In this case, platforms can only charge incremental values to advertisers, which reduce their market power and affect their price strategies and advertising levels. The last part discusses the implications of the two-sided nature of the media markets for the choice of content and diversity.

Suggested Citation

  • Simon P. Anderson & Bruno Jullien, 2015. "The advertising-financed business model in two-sided media markets," Post-Print hal-02866192, HAL.
  • Handle: RePEc:hal:journl:hal-02866192
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-02866192
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