Sponsored Content Advertising in a Two-Sided Market

Prabirendra Chatterjee () and Bo Zhou ()
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Prabirendra Chatterjee: Department of Marketing and Strategy, Cardiff Business School, Cardiff University, Cardiff CF10 3EU, United Kingdom
Bo Zhou: Department of Marketing, Robert H. Smith School of Business, University of Maryland, College Park, Maryland 20742

Management Science, 2021, vol. 67, issue 12, 7560-7574

Abstract: Sponsored content advertising, also known as native advertising, is a new ad format in which a brand’s content takes the same form and qualities of the publisher’s original content. Although many advertisers have largely embraced this new advertising format, consumers seem to react negatively toward sponsored content ads. In this paper, we present an analytical model that studies the strategic role of sponsored content advertising in a two-sided media market. We identify conditions under which competing platforms would choose sponsored content advertising over traditional advertising. Despite consumers’ negative sentiment toward sponsored content ads, they can be better off together with the advertisers when both platforms choose this ad format. In fact, we show that a certain degree of consumer disliking is necessary to make both advertisers and consumers better off with sponsored content ads. However, both competing platforms offering sponsored content ads may also result in a Prisoner’s Dilemma equilibrium outcome generating suboptimal profits. We further show that two symmetric media platforms can choose different advertising strategies, leading to an asymmetric equilibrium outcome. Lastly, we analyze how the presence of multihoming advertisers as well as an incomplete ad market coverage would affect the sponsored content ad equilibrium.

Keywords: advertising and media; competitive strategy; sponsored content advertising; native advertising; two-sided market (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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