Either or Both Competition: A “Two-Sided” Theory of Advertising with Overlapping Viewerships

TLDR

In media markets, consumers increasingly spread their attention across multiple outlets, especially online, yet traditional competition models assume exclusive consumption. The authors propose a new model that permits consumers to choose multiple outlets in order to analyze how this behavior affects advertising levels and the consequences of entry and mergers. The model incorporates novel forces that reflect outlets’ incentives to shape their customer base composition and links consumer preferences and advertising technologies to market outcomes. The model explains several empirical regularities that existing frameworks struggle to reconcile. JEL codes: D42, D43, L12, L13, L82, L86, M37.

Abstract

In media markets, consumers spread their attention to several outlets, increasingly so as consumption migrates online. The traditional framework for competition among media outlets rules out this behavior by assumption. We propose a new model that allows consumers to choose multiple outlets and use it to study the effects on advertising levels and the impact of entry and mergers. We identify novel forces which reflect outlets' incentives to control the composition of their customer base. We link consumer preferences and advertising technologies to market outcomes. The model can explain several empirical regularities that are difficult to reconcile with existing models. (JEL D42, D43, L12, L13, L82, L86, M37)