 Strategic Differentiation by Business Models: Free-to-Air and Pay-TVEmilio Calvano and Michele Polo CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy Abstract: Why do `Free' and `Pay' content cohabit in practically all media markets? We develop a model in which two identical broadcasters compete for viewers and advertisers that leads to endogenous differentiation. We show that differentiation does not require heterogeneous agents. Instead, we relate it to the `two-sided' nature of these markets. The asymmetric outcome is driven by the property that business models form strategic substitutes: if one station goes towards the ‘pay’ business model the rival has stronger incentives to choose the ‘free’ business model and viceversa. We propose a simple and natural property of the advertising technology that enhances strategic substitutability guaranteeing differentiation. In regime of competition there is a misallocation of advertising messages and therefore a waste of viewer attention. We show that a multi-station monopolist does not necessarily maintain differentiation and never offers content for free. Date: 2016-04-16, Revised 2017-11-07 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:438 Access Statistics for this paper More papers in CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy Contact information at EDIRC. |
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