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Getting beer during commercials: adverse effects of Ad-Avoidance

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  • Stuehmeier, Torben
  • Wenzel, Tobias

Abstract

This paper studies the impact of ad-avoidance behavior in media markets. We consider a situation where viewers can avoid advertisement messages. As the media market is a two-sided market, increased ad-avoidance reduces advertisers' value of placing an ad. We contrast two financing regimes, free-to-air and pay-TV. We find that increased avoidance opportunities decrease profits and entry in the free-to-air regime. In contrast, in the pay-TV regime, lower income from advertisements are compensated by higher subscription income leaving profits and the number of channels unaflected. Bypassing advertising messages affects welfare ambiguously.

Suggested Citation

  • Stuehmeier, Torben & Wenzel, Tobias, 2009. "Getting beer during commercials: adverse effects of Ad-Avoidance," FAU Discussion Papers in Economics 10/2009, Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics.
  • Handle: RePEc:zbw:iwqwdp:102009
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    References listed on IDEAS

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    1. 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.
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    3. Gu, Yiquan & Wenzel, Tobias, 2009. "A note on the excess entry theorem in spatial models with elastic demand," International Journal of Industrial Organization, Elsevier, vol. 27(5), pages 567-571, September.
    4. Claude Crampes & Carole Haritchabalet & Bruno Jullien, 2005. "Advertising, Competition and Entry in Media Industries," CESifo Working Paper Series 1591, CESifo Group Munich.
    5. Mark Armstrong & Julian Wright, 2009. "Mobile Call Termination," Economic Journal, Royal Economic Society, vol. 119(538), pages 270-307, June.
    6. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    7. 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.
    8. 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.
    9. Markus Reisinger & Ludwig Ressner & Richard Schmidtke, 2009. "TWO-SIDED MARKETS WITH PECUNIARY AND PARTICIPATION EXTERNALITIES -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 57(1), pages 32-57, March.
    10. Mangani, Andrea, 2003. "Profit and audience maximization in broadcasting markets," Information Economics and Policy, Elsevier, vol. 15(3), pages 305-315, September.
    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. Gu, Yiquan & Wenzel, Tobias, 2009. "Product variety, price elasticity of demand and fixed cost in spatial models," FAU Discussion Papers in Economics 03/2009, Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics.
    13. 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.
    14. Gu, Yiquan & Wenzel, Tobias, 2009. "Product variety, price elasticity of demand and fixed cost in spatial models," FAU Discussion Papers in Economics 03/2009, Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics.
    15. 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.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. When ad avoidance backfires
      by Economic Logician in Economic Logic on 2010-02-11 21:04:00

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    Cited by:

    1. Gu, Yiquan & Wenzel, Tobias, 2012. "Transparency, entry, and productivity," Economics Letters, Elsevier, vol. 115(1), pages 7-10.
    2. Clémence Christin, 2013. "Entry Deterrence Through Cooperative R&D Over-Investment," Recherches économiques de Louvain, De Boeck Université, vol. 79(2), pages 5-26.
    3. Stühmeier, Torben, 2012. "Target Advertising and Market Transparency," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62021, Verein für Socialpolitik / German Economic Association.
    4. Stühmeier Torben & Wenzel Tobias, 2012. "Regulating Advertising in the Presence of Public Service Broadcasting," Review of Network Economics, De Gruyter, pages 1-23.
    5. Haucap, Justus & Herr, Annika & Frank, Björn, 2011. "In vino veritas: Theory and evidence on social drinking," DICE Discussion Papers 37, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

    More about this item

    Keywords

    Media Markets; Two-Sided Markets; Ad-avoidance;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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