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Technology licensing by advertising supported media platforms: An application to internet search engines

  • Sapi, Geza
  • Suleymanova, Irina

We develop a duopoly model with advertising supported platforms and analyze incentives of a superior firm to license its advanced technologies to an inferior rival. We highlight the role of two technologies characteristic for media platforms: The technology to produce content and to place advertisements. Licensing incentives are driven solely by indirect network effects arising fromthe aversion of users to advertising. We establish a relationship between licensing incentives and the nature of technology, the decision variable on the advertiser side, and the structure of platforms' revenues. Only the technology to place advertisements is licensed. If users are charged for access, licensing incentives vanish. Licensing increases the advertising intensity, benefits advertisers and harms users. Our model provides a rationale for technology-based cooperations between competing platforms, such as the planned Yahoo-Google advertising agreement in 2008.

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Paper provided by Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE) in its series DICE Discussion Papers with number 23.

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Date of creation: 2011
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Handle: RePEc:zbw:dicedp:23
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  1. Joseph Farrell and Nancy T. Gallini., 1987. "Second-Sourcing as a Commitment: Monopoly Incentives to Attract Competition," Economics Working Papers 8760, University of California at Berkeley.
  2. Jean-Charles Rochet & Jean Tirole, 2014. "Platform Competition in Two-Sided Markets," CPI Journal, Competition Policy International, vol. 10.
  3. Simon P. Anderson & Stephen Coate, 2003. "Market Provision of Broadcasting: A Welfare Analysis," Virginia Economics Online Papers 358, University of Virginia, Department of Economics.
  4. 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.
  5. Claude Crampes & Carole Haritchabalet & Bruno Jullien, 2009. "ADVERTISING, COMPETITION AND ENTRY IN MEDIA INDUSTRIES -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 57(1), pages 7-31, 03.
  6. 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.
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