Customized Advertising via a Common Media Distributor

Abstract

We show that when a single media content distributor (such as a television cable company or an Internet provider) delivers advertising messages on behalf of multiple competing brands, it can sometimes utilize customized advertising to implement monopoly pricing. Even though such monopolistic pricing can be implemented with varying degrees of customization of commercials, product revenues and consumer surplus are highest when the distributor chooses the highest level of customization feasible. Consumers would, obviously, prefer aggressive price competition in product markets. However, given that collusion on prices is facilitated anyway, when the distributor acts as a common agent, the welfare of consumers is enhanced when commercials are better aligned with their preferences.