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Pricing Power in Advertising Markets: Theory and Evidence

Author

Listed:
  • Matthew Gentzkow
  • Jesse M. Shapiro
  • Frank Yang
  • Ali Yurukoglu

Abstract

Existing theories of media competition imply that advertisers will pay a lower price in equilibrium to reach consumers who multi-home across competing outlets. We generalize, extend, and test this prediction. We find that television outlets whose viewers watch more television charge a lower price per impression to advertisers. This finding helps rationalize well-known stylized facts such as a premium for younger and more male audiences on television. A quantitative version of our model whose only free parameter is a scale normalization can explain 35 percent of the variation in price per impression across owners of television networks, and aligns with recent trends in television advertising revenue. We use the model to quantify the impact of mergers and the effect of Netflix ad carriage on prices for linear television advertising. We then extend our analysis to social media markets where we find evidence of a premium for older audiences (who multi-home less), and we discuss implications for competition across ad formats.

Suggested Citation

  • Matthew Gentzkow & Jesse M. Shapiro & Frank Yang & Ali Yurukoglu, 2022. "Pricing Power in Advertising Markets: Theory and Evidence," NBER Working Papers 30278, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:30278
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    Cited by:

    1. Guy Aridor & Rafael Jiménez-Durán & Ro'ee Levy & Lena Song, 2024. "The Economics of Social Media," CESifo Working Paper Series 10934, CESifo.
    2. Guy Aridor & Yeon-Koo Che, 2024. "Privacy Regulation and Targeted Advertising: Evidence from Apple’s App Tracking Transparency," CESifo Working Paper Series 10928, CESifo.
    3. Bisceglia, Michele, 2023. "The unbundling of journalism," European Economic Review, Elsevier, vol. 158(C).

    More about this item

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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