The Effects of Introducing Advertising in Pay TV: A Model of Asymmetric Competition between Pay TV and Free TV
This paper develops a theoretical model of asymmetric competition between a pay TV and a free TV broadcaster. Our model shows that the pay TV broadcaster has incentives to place advertising on its channel if the marginal return on advertising exceeds the viewers' disutility from advertising. In this case, however, the pay TV advertising level is always below the corresponding level on free TV. The pay TV advertising level can increase with a higher viewer disutility from advertising but the pay TV channel will never attract a larger viewership than the free TV channel. Furthermore, we show that introducing advertising on pay TV induces a decrease of the subscription fees on this channel and a decrease in the advertising level of the free TV channel. Moreover, pay TV viewer demand can increase if the pay TV broadcaster places advertising on its channel. If the viewer disutility of advertising is sufficiently large, aggregate broadcaster profits increase through the introduction of advertising in pay TV, while aggregate consumer surplus always increases.
|Date of creation:||Jan 2012|
|Date of revision:|
|Contact details of provider:|| Postal: Plattenstrasse 14, CH-8032 Zürich|
Phone: ++41 1 634 29 27
Fax: ++41 1 634 43 48
Web page: http://www.isu.uzh.ch
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.:
- repec:ebl:ecbull:v:12:y:2007:i:7:p:1-8 is not listed on IDEAS
- 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.
- Jean-Charles Rochet & Jean Tirole, 2014.
"Platform Competition in Two-Sided Markets,"
Competition Policy International, vol. 10.
- Rochet, Jean-Charles & Tirole, Jean, 2003. "Platform Competition in Two-Sided Markets," IDEI Working Papers 152, Institut d'Économie Industrielle (IDEI), Toulouse.
- Jean-Charles Rochet & Jean Triole, 2002. "Platform competition in two sided markets," LSE Research Online Documents on Economics 24929, London School of Economics and Political Science, LSE Library.
- Jean-Charles Rochet & Jean Triole, 2002. "Platform Competition in Two Sided Markets," FMG Discussion Papers dp409, Financial Markets Group.
- Kaiser, Ulrich & Song, Minjae, 2009. "Do media consumers really dislike advertising? An empirical assessment of the role of advertising in print media markets," International Journal of Industrial Organization, Elsevier, vol. 27(2), pages 292-301, March.
- Hans Jarle Kind & Tore Nilssen & Lars Sørgard, 2009.
"Business Models for Media Firms: Does Competition Matter for how they Raise Revenue?,"
CESifo Working Paper Series
2713, CESifo Group Munich.
- Hans Jarle Kind & Tore Nilssen & Lars Sørgard, 2009. "Business Models for Media Firms: Does Competition Matter for How They Raise Revenue?," Marketing Science, INFORMS, vol. 28(6), pages 1112-1128, 11-12.
- Jean J. Gabszewicz & Didier Laussel & Nathalie Sonnac, 2004.
"Programming and Advertising Competition in the Broadcasting Industry,"
Journal of Economics & Management Strategy,
Wiley Blackwell, vol. 13(4), pages 657-669, December.
- GABSZEWICZ, Jean J. & LAUSSEL, Didier & SONNAC, Nathalie, . "Programming and advertising competition in the broadcasting industry," CORE Discussion Papers RP 1873, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Mark Armstrong, 2005. "Public service broadcasting," Fiscal Studies, Institute for Fiscal Studies, vol. 26(3), pages 281-299, September.
- Simon P. Anderson & Oystein Foros & Hans Jarle Kind, 2010. "Hotelling Competition with Multi-Purchasing: Time Magazine, Newsweek, or both?," CESifo Working Paper Series 3096, CESifo Group Munich.
- 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.
- 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.
- Gabszewicz, Jean J & Laussel, Didier & Sonnac, Nathalie, 2002.
" Press Advertising and the Political Differentiation of Newspapers,"
Journal of Public Economic Theory,
Association for Public Economic Theory, vol. 4(3), pages 317-34.
- GABSZEWICZ, Jean J. & LAUSSEL, Didier & SONNAC, Nathalie, . "Press advertising and the political differentiation of newspapers," CORE Discussion Papers RP 1561, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- GABSZEWICZ, Jean J. & LAUSSEL, Didier & SONNAC, Nathalie, .
"Press advertising and the ascent of the `Pensée Unique',"
CORE Discussion Papers RP
1512, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Gabszewicz, Jean J. & Laussel, Dider & Sonnac, Nathalie, 2001. "Press advertising and the ascent of the 'Pensee Unique'," European Economic Review, Elsevier, vol. 45(4-6), pages 641-651, May.
- Crampes, Claude & Haritchabalet, Carole & Jullien, Bruno, 2006.
"Advertising, Competition and Entry in Media Industries,"
IDEI Working Papers
374, Institut d'Économie Industrielle (IDEI), Toulouse.
- Claude Crampes & Carole Haritchabalet & Bruno Jullien, 2005. "Advertising, Competition and Entry in Media Industries," CESifo Working Paper Series 1591, CESifo Group Munich.
- Caillaud, Bernard & Jullien, Bruno, 2003. " Chicken & Egg: Competition among Intermediation Service Providers," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 309-28, Summer.
- Alexander Rasch, 2007. "Platform competition with partial multihoming under differentiation: a note," Economics Bulletin, AccessEcon, vol. 12(7), pages 1-8.
- E. Glen Weyl, 2010. "A Price Theory of Multi-sided Platforms," American Economic Review, American Economic Association, vol. 100(4), pages 1642-72, September.
When requesting a correction, please mention this item's handle: RePEc:iso:wpaper:0153. 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: (IBW IT)
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.