A Theory of Bundling Advertisements in Media Markets

Kevin Murphy and Ignacio Palacios-Huerta

No 22994, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Watching TV and other forms of media consumption represent, after sleeping and working, the main activity that adults perform in developed countries. We present a dynamic theory of commercial broadcasting where the media trade utility-raising goods (programs, information, and services) with audiences in exchange for their exposure to advertisements (utility-decreasing bads), and where goods are otherwise free to the audience except for their opportunity cost of time. Goods and bads are dynamically arranged, and as such traded in an intertemporal bundle. No monetary transfers take place between media and audiences, and this barter exchange is not contractually sustained. We study this dynamic problem in a model that captures the central characteristics of how commercial media markets operate. The model is rich enough to account for a variety of disparate evidence in television, radio, print media and the web.

JEL-codes: D11 D21 L21 L82 (search for similar items in EconPapers)
Date: 2016-12
New Economics Papers: this item is included in nep-com, nep-cul, nep-mic, nep-mkt and nep-upt
Note: IO
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