The Effects of Introducing Advertising in Pay TV: A Model of Asymmetric Competition between Pay TV and Free TV

Helmut Dietl, Markus Lang and Panlang Lin ()
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Panlang Lin: Department of Business Administration (IBW), University of Zurich

No 315, Working Papers from University of Zurich, Department of Business Administration (IBW)

Abstract: This paper develops a theoretical model of asymmetric competition between a pay TV and a free TV broadcaster. Our model shows that the pay TV broadcaster has incentives to place advertising on its channel if the marginal return on advertising exceeds the viewers' disutility from advertising. In this case, however, the pay TV advertising level is always below the corresponding level on free TV. The pay TV advertising level can increase with a higher viewer disutility from advertising but the pay TV channel will never attract a larger viewership than the free TV channel. Furthermore, we show that introducing advertising on pay TV induces a decrease of the subscription fees on this channel and a decrease in the advertising level of the free TV channel. Moreover, pay TV viewer demand can increase if the pay TV broadcaster places advertising on its channel. If the viewer disutility of advertising is suffciently large, aggregate broadcaster profits increase through the introduction of advertising in pay TV, while aggregate consumer surplus always increases.

Keywords: Manufacturing network; Manufacturing plant; Global operations management; Lead factory; Knowledge transfer (search for similar items in EconPapers)
Pages: 26 pages
Date: 2012-01
New Economics Papers: this item is included in nep-com, nep-cul and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: The Effects of Introducing Advertising in Pay TV: A Model of Asymmetric Competition between Pay TV and Free TV (2023)
Working Paper: The Effects of Introducing Advertising in Pay TV: A Model of Asymmetric Competition between Pay TV and Free TV (2012)
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