Correcting Audience Externalities in Television Advertising

Abstract

W hen a television advertisement causes viewers to switch channels, it reduces the audience available to subsequent advertisers. This audience loss is not reflected in the advertisement price, resulting in an audience externality. The present article analyzes the television network's problem of how to select, order, and price advertisements in a break of endogenous length in order to correct audience externalities. It proposes the Audience Value Maximization Algorithm (AVMA), which considers many possible advertisement orderings within a dynamic programming framework with a strategy-proof pricing mechanism. Two data sets are used to estimate heterogeneity in viewer-switching probabilities and advertiser willingness-to-pay parameters in order to evaluate the algorithm's performance. A series of simulations shows that AVMA typically maximizes audience value to advertisers, increases network revenue relative to several alternatives, and runs quickly enough to implement.

The effect of ad blocking on website traffic and quality

“…Furthermore, users may turn to ad blocking because websites, when choosing the extent and invasiveness of ads, do not internalize an externality imposed on other websites. As Ken Fisher, the Founder of Ars Technica, explained, “The majority of people blocking ads on our site were doing it because other sites were irritating them … It's the worst players in the web publishing world that's driving this.” Related even within a website, advertisers do not internalize the externality imposed on other advertisers (Wilbur, Xu, and Kempe, ; Wilbur, ).…”

Social TV, Advertising, and Sales: Are Social Shows Good for Advertisers?

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Television Advertising and Online Shopping

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