ADVERTISING, COMPETITION AND ENTRY IN MEDIA INDUSTRIES^*

Abstract

This paper presents a model of media competition with free entry when media platforms are financed both from advertising receipts and customers' subscriptions. We establish a relationship between the equilibrium levels of prices, advertising and entry, the welfare maximizing levels and the advertising technology. Under constant or increasing returns to scale in the audience size, we find an excessive level of entry and an insufficient level of advertising. We then extend the analysis along several dimensions: the price as a strategic variable on the market for advertising, free media platforms and the media quality dimension.