When Pricing Below Marginal Cost Pays Off: Optimal Price Choice in a Media Market with Upfront Pricing

Ulrich Kaiser ()

No 2007-05, CIE Discussion Papers from University of Copenhagen. Department of Economics. Centre for Industrial Economics

Abstract: I derive a model of profit maximization for a print media firm with upfront advertising pricing. The model is estimated using detailed quarterly data on German women's magazines observed between I/1994 and IV/2004. Main empirical results are that (i) cover price increases lead to substantial reductions in advertising revenue, thereby offsetting possible corresponding gains in magazine sales revenue, (ii) magazines with particularly large advertising revenues per copy set cover prices well below marginal cost and (iii) marginal production cost are decreasing in a magazine's own circulation but are unaffected by the own publishers' total printing volume which does not provide evidence for an efficiency defense in print media mergers.

Keywords: magazines; cost estimation; twosided markets (search for similar items in EconPapers)
JEL-codes: C33 L11 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2007-04
New Economics Papers: this item is included in nep-cul, nep-mic and nep-mkt
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Citations: View citations in EconPapers (2)

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