Optimal Timing of TV Commercials: Symmetrical Model

Tomas Kadlec

CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague

Abstract: In this paper I study the behavior of free-good producers (TV broadcasters) on a market where every consumer (TV viewer) perpetually makes a decision whether to consume and which product (TV channel) to consume contingent on the attractiveness of the currently consumed product. Every producer optimally allocates a time period where a product with higher attractiveness (TV program) is replaced by a product with lower attractiveness (advertising). While products with higher attractiveness represent producers’ costs, products with lower attractiveness bring in revenue that is proportional to the audience reach. I assume that consumers choose among products and the outside option following a Markov process where probabilities of transition reflect various attractiveness of the products. Given symmetrical positions of the producers, I prove that their optimal strategy is to put their commercial breaks into the same or very close times. For some setting of the parameters, the breaks will overlap perfectly. Given the perfect overlap, both broadcasters are better off if they fragment their breaks into shorter breaks keeping the total amount of commercial time the same.

Date: 2002-01
New Economics Papers: this item is included in nep-cul
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