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When Pricing Below Marginal Cost Pays Off: Optimal Price Choice in a Media Market with Upfront Pricing

  • Ulrich Kaiser

    (University of Southern Denmark)

I derive a model of profit maximization for a print media firm with upfront advertising pricing. The model is estimated using detailed quarterly data on German women's magazines observed between I/1994 and IV/2004. Main empirical results are that (i) cover price increases lead to substantial reductions in advertising revenue, thereby offsetting possible corresponding gains in magazine sales revenue, (ii) magazines with particularly large advertising revenues per copy set cover prices well below marginal cost and (iii) marginal production cost are decreasing in a magazine's own circulation but are unaffected by the own publishers' total printing volume which does not provide evidence for an efficiency defense in print media mergers.

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Paper provided by University of Copenhagen. Department of Economics. Centre for Industrial Economics in its series CIE Discussion Papers with number 2007-05.

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Length: 28 pages
Date of creation: Apr 2007
Date of revision:
Handle: RePEc:kud:kuieci:2007-05
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