The media and advertising: a table of two-sided markets

Simon Anderson () and Jean Gabszewicz ()

No 2005060, Discussion Papers (ECON - Département des Sciences Economiques) from Université catholique de Louvain, Département des Sciences Economiques

Abstract: Media industries are important drivers of popular culture. A large fraction of leisure time is devoted to radio, magazines, newspapers, the Internet, and television (the illustrative example henceforth). Most advertising expenditures are incurred for these media. They are also mainly supported by advertising revenue. Early work stressed possible market failures in program dupplication and catering to the Lowest Common Denominator, indicating lack of cultual diversisty and quality. The business model for most media industries is underscored by advertisersÕ demand to reach prospectie customers. This business model has important impllications for performance in the market since viewer sovereignty is indirect. Viewers are attracted by programming, though they dislike the ads it carries, and advertisers want viewers as potential consumers. The two sides are coordinated by broadcasters (or ÒplatformsÓ) that choose ad levels and program types, and advertising finances the programming. Competition for viewers of the demographics most desired by advertisers implies that programming choices will be biased towards the tastes of those with such demographics. The ability to use subscription pricing may help improve performance by catering to the tastes of those otherwise under-represented, though higher full prices tend to favor broadcasters at the expense of viewers and advertisers. If advertising demand is weak, program equilibrium porgram selection may be too extreme as broadcasters strive to avoid ruinous subscription price competition, but strong advertising demand may lead to strong competition for viewers and hence minimum differentiation (Òla pensŽe uniqueÓ). Markets (such as newspapers) with a high proportion of ad-lovers may be served only by monopoly due to a circulation spiral : advertisers want to place ads in the paper with most readers, but readers want to buy the paper with more ads.

Keywords: Advertising finance; two-sided markets; platform competition (search for similar items in EconPapers)
JEL-codes: D43 L13 L82 M37 Z11 (search for similar items in EconPapers)
Date: Written
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Related works:
Chapter: The Media and Advertising: A Tale of Two-Sided Markets (2006)
Working Paper: The Media and Advertising: A Tale of Two-Sided Markets (2005)
Working Paper: The media and advertising: a tale of two-sided markets (2005)
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