Competition for Advertisers and for Viewers in Media Markets

Abstract

Standard models of advertising‐financed media assume consumers patronise a single‐media platform, precluding effective competition for advertisers. Such competition ensues if consumers multi‐home. The principle of incremental pricing implies that multi‐homing consumers are less valuable to platforms. Then entry of new platforms decreases advertisement prices, while a merger increases them, and advertisement‐financed platforms may suffer if a public broadcaster carries advertisements. Platforms may bias content against multi‐homing consumers, especially if consumers highly value overlapping content and/or second impressions have low value.

The Advertising-Financed Business Model in Two-Sided Media Markets

“…42 Notice that the price per ad per consumer, p i = P i =N i , may increase or decrease with the strength of advertiser demand, A, depending on the e¤ect of ad nuisance on the share of single-homers. Along similar lines, the price per ad per consumer decreases if the number of shared consumers goes up with entry, or if it falls less in percentage terms than the number of exclusive consumers (Anderson, Foros, and Kind, 2015).…”

“…21 Kind, Nilssen, and Sørgard (2007) consider a quadratic representative consumer utility function à la Shubik and Levitan (1980). They assume a three-stage game structure whereby platforms …rst set advertising space; 22 then advertisers choose how many ads to place on each platform; then the consumer makes her viewing choices. Advertisers are potentially heterogeneous, but each advertiser has a constant return per ad aired per viewer hour on a channel (regardless of how many ads are seen and whether or not they are on other channels).…”

“…With single-homing consumers, there is no direct competition for advertisers, who multi-home. Anderson, Foros, and Kind (2015) give some anecdotal evidence that instead private broadcasters do not relish there being ads on the public channel.…”

“…The role of multi-homing is brought out quite immediately in this context, and shows quite transparently how it alters market equilibrium characteristics as regards the impact of public platforms, entry, merger, etc. The analysis, which follows Anderson, Foros, and Kind (2015) highlights the incremental pricing principle at work in the Ambrus-Reisinger (2006) analysis and subsequent papers.…”

“…Since the single-homers are worth more, platforms will strive to deliver such exclusive viewers while avoiding overlapped consumers. The theme is developed in Anderson, Foros, and Kind (2015) in a spatial duopoly model. As noted earlier, in the context of the Hotelling model, the multi-homing consumers will be those in the middle of the market.…”