Pricing Power in Advertising Markets: Theory and Evidence

Matthew Gentzkow, Jesse Shapiro, Frank Yang and Ali Yurukoglu

No 30278, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Existing theories of media competition imply that advertisers will pay a lower price in equilibrium to reach consumers who multi-home across competing outlets. We generalize, extend, and test this prediction. We find that television outlets whose viewers watch more television charge a lower price per impression to advertisers. This finding helps rationalize well-known stylized facts such as a premium for younger and more male audiences on television. A quantitative version of our model whose only free parameter is a scale normalization can explain 35 percent of the variation in price per impression across owners of television networks, and aligns with recent trends in television advertising revenue. We use the model to quantify the impact of mergers and the effect of Netflix ad carriage on prices for linear television advertising. We then extend our analysis to social media markets where we find evidence of a premium for older audiences (who multi-home less), and we discuss implications for competition across ad formats.

JEL-codes: L10 L82 M37 (search for similar items in EconPapers)
Date: 2022-07
New Economics Papers: this item is included in nep-com, nep-ind and nep-reg
Note: IO
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Citations: View citations in EconPapers (4)

Published as Matthew Gentzkow & Jesse M. Shapiro & Frank Yang & Ali Yurukoglu, 2024. "Pricing Power in Advertising Markets: Theory and Evidence," American Economic Review, vol 114(2), pages 500-533.

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