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The dynamics of television advertising with boundedly rational consumers

  • Gomes, Orlando

The paper adapts a static model of television advertising into a dynamic scenario. In its original form, the model consists on a profit maximization problem of a television network working in a competitive environment. The network sells commercial time to advertisers and tries to minimize the effects of viewers’ aversion to ads. Viewers are assumed heterogeneous with regard to the preferences over the types of products companies sell through ad time. Into this framework we introduce an intertemporal rule reflecting the possible preference changes of consumers (these are boundedly rational and their utility for different types of products varies over time). The introduction of the intertemporal rule originates interesting dynamic results, namely in what concerns the evolution over time of crucial variables like the total time of broadcasting that networks allocate to advertising or the amount of revenues that satisfies the profit maximization condition. As in the original model, attention will be given to the possibility, that cable television allows, of ad addressability.

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File URL: http://mpra.ub.uni-muenchen.de/2847/1/MPRA_paper_2847.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 2847.

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Date of creation: Sep 2006
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Handle: RePEc:pra:mprapa:2847
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  1. William A. Branch & George W. Evans, 2010. "Monetary Policy and Heterogeneous Expectations," CDMA Working Paper Series 201011, Centre for Dynamic Macroeconomic Analysis.
  2. Nathalie Sonnac, 2000. "Readers’ Attitudes Toward Press Advertising : Are They Ad-Lovers or Ad-Averse ?," Working Papers 2000-28, Centre de Recherche en Economie et Statistique.
  3. Fare, Rolf & Grosskopf, Shawna & Seldon, Barry J. & Tremblay, Victor J., 2004. "Advertising efficiency and the choice of media mix: a case of beer," International Journal of Industrial Organization, Elsevier, vol. 22(4), pages 503-522, April.
  4. Nathalie Sonnac, 2000. "Readers’ Attitudes Toward Press Advertising : Are They Ad-Lovers or Ad-Averse ?," Working Papers 2000-28, Centre de Recherche en Economie et Statistique.
  5. Robert Kieschnick & B. McCullough & Steven Wildman, 2001. "The Market for Television Advertising: Model and Evidence," Review of Marketing Science Working Papers 1-2-1015, Berkeley Electronic Press.
  6. David Hirshleifer, 2001. "Investor Psychology and Asset Pricing," Journal of Finance, American Finance Association, vol. 56(4), pages 1533-1597, 08.
  7. 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, Elsevier.
  8. 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.
  9. Goettler, R., 1999. "Advertising Rates, Audience Composition, and Competition in the Network Television Industry," GSIA Working Papers 1999-28, Carnegie Mellon University, Tepper School of Business.
  10. Ken Smith, 1999. "Preprints Versus Display Advertising: Which is More Profitable for Nondaily Newspapers?," Journal of Media Economics, Taylor & Francis Journals, vol. 12(4), pages 233-245.
  11. Leonard Reid & Karen Whitehill King & Hugh Martin & Hyeonjin Soh, 2005. "Local Advertising Decision Makers' Perceptions of Media Effectiveness and Substitutability," Journal of Media Economics, Taylor & Francis Journals, vol. 18(1), pages 35-53.
  12. Esteban, Lola & Gil, Agustin & Hernandez, Jose M, 2001. "Informative Advertising and Optimal Targeting in a Monopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 49(2), pages 161-80, June.
  13. Gaunersdorfer, Andrea, 2000. "Endogenous fluctuations in a simple asset pricing model with heterogeneous agents," Journal of Economic Dynamics and Control, Elsevier, vol. 24(5-7), pages 799-831, June.
  14. repec:att:wimass:9621 is not listed on IDEAS
  15. 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.
  16. Nathalie Sonnac, 2000. "Readers' Attitudes Toward Press Advertising: Are They Ad-Lovers or Ad-Averse?," Journal of Media Economics, Taylor & Francis Journals, vol. 13(4), pages 249-259.
  17. Brock, William A. & Hommes, Cars H., 1998. "Heterogeneous beliefs and routes to chaos in a simple asset pricing model," Journal of Economic Dynamics and Control, Elsevier, vol. 22(8-9), pages 1235-1274, August.
  18. Eun-mee Kim & Steven Wildman, 2006. "A Deeper Look at the Economics of Advertiser Support for Television: The Implications of Consumption-Differentiated Viewers and Ad Addressability," Journal of Media Economics, Taylor & Francis Journals, vol. 19(1), pages 55-79.
  19. repec:cup:cbooks:9780521551861 is not listed on IDEAS
  20. Walter McDowell & John Sutherland, 2000. "Choice Versus Chance: Using Brand Equity Theory to Explore TV Audience Lead-in Effects, A Case Study," Journal of Media Economics, Taylor & Francis Journals, vol. 13(4), pages 233-247.
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