Platform Competition for Advertisers and Viewers in Media Markets with Endogenous Content and Advertising

Abstract

In this paper, we investigate two competing pay-tv platforms or free-to-air media platforms that consist of two groups of agents: viewers and advertisers. The pay-tv platforms can receive revenues from charging viewers pay-per-view prices and advertising, while the free-to-air platforms can only obtain all incomes from advertising. We discuss and compare advertising intensities and program content provisions of the two competing media platforms. Our findings show that if the extent to which viewers dislike advertising (the nuisance for advertising) is more massive than the marginal benefit that advertisers receive from an additional viewer, the pay-tv stations tend to maximally differentiate their program content and charge the viewers higher pay-per-view prices. If the nuisance approaches to the marginal benefit, however, both stations should offer similar program content, and charge the viewers lower prices under certain conditions. Particularly, if both platforms provide duplicated content, they should subsidize the viewers. In contrast, we show that the free-to-air media platforms never duplicate program content with a positive nuisance for advertising, and tend to offer maximal differentiated content if the nuisance is sufficiently large. Moreover, we reveal that if the viewers greatly dislike advertising (care less about advertising), the advertising volume of the pay-tv platforms is lower (higher) than that of the free-to-air platforms. Finally, we extend our base model to the case in which a pay-tv platform competes against a free-to-air station, and numerically show that the profit of the pay-tv platform may be larger or smaller than that of the free-to-air station.

Keywords

Media platforms / two-sided markets / content provision / advertising intensity / product differentiation

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