IDEAS home Printed from https://ideas.repec.org/p/iso/wpaper/0157.html
   My bibliography  Save this paper

Advertising Pricing Models in Media Markets: Lump-Sum versus Per-Consumer Charges

Author

Listed:
  • Helmut Dietl

    () (Department of Business Administration, University of Zurich)

  • Markus Lang

    () (Department of Business Administration, University of Zurich)

  • Panlang Lin

    () (Department of Business Administration, University of Zurich)

Abstract

This paper develops a model of asymmetric competition between a pay and a free media platform. The pay media platform generates revenues from media consumers through subscription fees, while the free media platform generates revenues from charging advertisers either on a lump-sum basis (regime A) or on a per-consumer basis (regime B). We show that the free platform produces a higher advertising level and attracts more consumers in regime A than B although advertisers must pay more for ads and consumers dislike ads. Moreover,\ the pay media platform faces higher subscription fees and lower consumer demand in regime A than B. Compared to regime B, the profit of the free (pay) media platform is higher (lower) in regime A, while aggregate profits are higher only if the consumers' disutility from ads is sufficiently low. In addition, advertisers are better off in regime A than B, while the opposite is true for the media consumers. Finally, in small media markets, social welfare is lower in regime A than B, while this is true in large media markets only if the media consumers' disutility from advertising is sufficiently high.

Suggested Citation

  • Helmut Dietl & Markus Lang & Panlang Lin, 2012. "Advertising Pricing Models in Media Markets: Lump-Sum versus Per-Consumer Charges," Working Papers 0157, University of Zurich, Institute for Strategy and Business Economics (ISU).
  • Handle: RePEc:iso:wpaper:0157
    as

    Download full text from publisher

    File URL: http://repec.business.uzh.ch/RePEc/iso/ISU_WPS/157_ISU_full.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Paul Belleflamme & Eric Toulemonde, 2009. "Negative Intra-Group Externalities In Two-Sided Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(1), pages 245-272, February.
    2. 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.
    3. Choi, Jay Pil, 2006. "Broadcast competition and advertising with free entry: Subscription vs. free-to-air," Information Economics and Policy, Elsevier, vol. 18(2), pages 181-196, June.
    4. E. Glen Weyl, 2010. "A Price Theory of Multi-sided Platforms," American Economic Review, American Economic Association, vol. 100(4), pages 1642-1672, September.
    5. Kaiser, Ulrich & Wright, Julian, 2006. "Price structure in two-sided markets: Evidence from the magazine industry," International Journal of Industrial Organization, Elsevier, vol. 24(1), pages 1-28, January.
    6. Tåg, Joacim, 2009. "Paying to remove advertisements," Information Economics and Policy, Elsevier, vol. 21(4), pages 245-252, November.
    7. Economides, Nicholas & Tåg, Joacim, 2012. "Network neutrality on the Internet: A two-sided market analysis," Information Economics and Policy, Elsevier, vol. 24(2), pages 91-104.
    8. Joacim TÅG, 2009. "Competing Platforms and Third Party Application Developers," Communications & Strategies, IDATE, Com&Strat dept., vol. 1(74), pages 95-116, 2nd quart.
    9. Ramon Casadesus-Masanell & Feng Zhu, 2010. "Strategies to Fight Ad-Sponsored Rivals," Management Science, INFORMS, vol. 56(9), pages 1484-1499, September.
    10. Jean-Charles Rochet & Jean Tirole, 2014. "Platform Competition in Two-Sided Markets," CPI Journal, Competition Policy International, vol. 10.
    11. 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.
    12. Claude Crampes & Carole Haritchabalet & Bruno Jullien, 2009. "Advertising, Competition And Entry In Media Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 57(1), pages 7-31, March.
    13. Caillaud, Bernard & Jullien, Bruno, 2003. "Chicken & Egg: Competition among Intermediation Service Providers," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 309-328, Summer.
    14. 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.
    15. Helmut Dietl & Markus Lang & Panlang Lin, 2012. "The Effects of Introducing Advertising in Pay TV: A Model of Asymmetric Competition between Pay TV and Free TV," Working Papers 0153, University of Zurich, Institute for Strategy and Business Economics (ISU).
    16. Anderson, Simon P. & Gabszewicz, Jean J., 2006. "The Media and Advertising: A Tale of Two-Sided Markets," Handbook of the Economics of Art and Culture, in: V.A. Ginsburgh & D. Throsby (ed.), Handbook of the Economics of Art and Culture, edition 1, volume 1, chapter 18, pages 567-614, Elsevier.
    17. repec:rje:randje:v:37:y:2006:3:p:720-737 is not listed on IDEAS
    18. 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.
    19. Hans Jarle Kind & Tore Nilssen & Lars Sørgard, 2007. "Competition for Viewers and Advertisers in a TV Oligopoly," Journal of Media Economics, Taylor & Francis Journals, vol. 20(3), pages 211-233.
    20. Marc Rysman, 2004. "Competition Between Networks: A Study of the Market for Yellow Pages," Review of Economic Studies, Oxford University Press, vol. 71(2), pages 483-512.
    21. 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.
    22. 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.
    23. Lin Panlang, 2011. "Market Provision of Program Quality in the Television Broadcasting Industry," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-22, March.
    24. repec:rje:randje:v:37:y:2006:3:p:668-691 is not listed on IDEAS
    25. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zennyo, Yusuke, 2020. "Freemium competition among ad-sponsored platforms," Information Economics and Policy, Elsevier, vol. 50(C).
    2. Xiaoying Cheng & Lifeng Mu & Yanhong Sun & Yiwen Bian, 2018. "Optimal Pricing Decisions for the Online Video Platform Under Customer Choice," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 35(01), pages 1-21, February.
    3. Pan, Lijun, 2017. "Endogenous Choice On Advertising Pricing Of Media Platforms: Lump-Sum Fee Vs. Proportional Fee," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 58(1), pages 21-40, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Marco Antonielli & Lapo Filistrucchi, 2011. "Collusion and the political differentiation of newspapers," Working Papers 11-26, NET Institute, revised Nov 2011.
    2. Simon P. Anderson & Bruno Jullien, 2015. "The advertising-financed business model in two-sided media markets," Post-Print hal-02866192, HAL.
    3. Reisinger, Markus, 2012. "Platform competition for advertisers and users in media markets," International Journal of Industrial Organization, Elsevier, vol. 30(2), pages 243-252.
    4. Filistrucchi, L. & Antonielli, M., 2012. "Collusion and the Political Differentiation of Newspapers," Other publications TiSEM 3ec21c1b-a4d8-4a31-a5fc-8, Tilburg University, School of Economics and Management.
    5. Anna D'Annunzio, 2013. "Vertical Integration in Two-Sided Markets: Exclusive Provision and Program Quality," DIAG Technical Reports 2013-16, Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza".
    6. Charles Angelucci & Julia Cagé, 2019. "Newspapers in Times of Low Advertising Revenues," American Economic Journal: Microeconomics, American Economic Association, vol. 11(3), pages 319-364, August.
    7. Charles Angelucci & Julia Cage & Michael Sinkinson, 2020. "Media Competition and News Diets," Sciences Po publications 2020-03, Sciences Po.
    8. Behringer, Stefan & Filistrucchi, Lapo, 2015. "Hotelling competition and political differentiation with more than two newspapers," Information Economics and Policy, Elsevier, vol. 30(C), pages 36-49.
    9. Filistrucchi, L. & Antonielli, M., 2012. "Collusion and the Political Differentiation of Newspapers," Other publications TiSEM 41fe3816-41ca-4f3f-8aef-4, Tilburg University, School of Economics and Management.
    10. Kim, Song-min, 2016. "How can we make a socially optimal large-scale media platform? Analysis of a monopolistic Internet media platform using two-sided market theory," Telecommunications Policy, Elsevier, vol. 40(9), pages 899-918.
    11. Helmut Dietl & Markus Lang & Panlang Lin, 2012. "The Effects of Introducing Advertising in Pay TV: A Model of Asymmetric Competition between Pay TV and Free TV," Working Papers 0153, University of Zurich, Institute for Strategy and Business Economics (ISU).
    12. Maria Battaggion & Alessandro Vaglio, 2015. "Watchdogs, Platforms and Audience: An Economic Perspective on Media Markets," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 43(2), pages 209-228, June.
    13. Claude Crampes & Carole Haritchabalet & Bruno Jullien, 2009. "Advertising, Competition And Entry In Media Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 57(1), pages 7-31, March.
    14. Anderson, Simon P. & Gabszewicz, Jean J., 2006. "The Media and Advertising: A Tale of Two-Sided Markets," Handbook of the Economics of Art and Culture, in: V.A. Ginsburgh & D. Throsby (ed.), Handbook of the Economics of Art and Culture, edition 1, volume 1, chapter 18, pages 567-614, Elsevier.
    15. Lin Panlang, 2011. "Market Provision of Program Quality in the Television Broadcasting Industry," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-22, March.
    16. Reisinger, Markus, 2010. "Unique Equilibrium in Two-Part Tariff Competition between Two-Sided Platforms," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 308, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    17. Ramon Casadesus-Masanell & Feng Zhu, 2010. "Strategies to Fight Ad-Sponsored Rivals," Management Science, INFORMS, vol. 56(9), pages 1484-1499, September.
    18. Miguel González-Maestre & Francisco Martínez-Sánchez, 2015. "Quality choice and advertising regulation in broadcasting markets," Journal of Economics, Springer, vol. 114(2), pages 107-126, March.
    19. Enrico Böhme & Christopher Müller, 2013. "Price-Increasing Competition on Two-Sided Markets with Homogeneous Platforms," Journal of Industry, Competition and Trade, Springer, vol. 13(4), pages 453-479, December.
    20. Kind, Hans Jarle & Nilssen, Tore & Sørgard, Lars, 2016. "Inter-firm price coordination in a two-sided market," International Journal of Industrial Organization, Elsevier, vol. 44(C), pages 101-112.

    More about this item

    Keywords

    Advertising; media platform; two-sided market; lump-sum charge; per-consumer charge; asymmetric competition;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iso:wpaper:0157. 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). General contact details of provider: https://edirc.repec.org/data/isuzhch.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.