A Two-Sided Model of Television Competition with Advertising Pricing and Endogenous Reinvestment

David Bardey

No 26-1736, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: This paper studies competition between television channels in a two-sided market with asymmetric firms. Motivated by a competition case in Colombia, we consider an oligopoly with three channels—two large and one small—that compete for viewers and advertisers. Advertising affects viewers both directly and indirectly through content quality, which is endogenously determined by the share of revenues that channels reinvest rather than distribute to shareholders. We first characterise the equilibrium of the subgame between viewers and advertisers and derive comparative statics linking audience levels to prices and payout policies. We then analyse the equilibrium of the game between channels, which jointly choose advertising prices and payout rates. While equilibrium prices are characterised implicitly, the model delivers closed-form solutions for payout decisions. Our main result is that asymmetries in audience size translate into asymmetric competitive pressure on the advertising side, which weakens the smaller channel. This effect is amplified when advertisers are restricted to single-homing, as in the presence of exclusivity clauses. By concentrating advertising demand on dominant channels, exclusivity reduces the smaller channel’s revenues and its incentives to invest in content quality, thereby limiting its ability to compete. These findings provide a novel mechanism through which exclusivity can generate exclusionary effects in two-sided media markets by affecting both demand allocation and endogenous investment decisions. We find that exclusivity reduces social welfare, mainly due to a decline in advertisers’ surplus that is not offset by improvements on the viewers’ side.

Keywords: Two-sided markets; free-TV; ad-financed business model; competitive bottleneck; exclusivity contracts (search for similar items in EconPapers)
JEL-codes: D43 L11 L13 L82 L86 M37 (search for similar items in EconPapers)
Date: 2026-04
New Economics Papers: this item is included in nep-com and nep-gth
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Working Paper: A Two-Sided Model of Television Competition with Advertising Pricing and Endogenous Reinvestment (2026)
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