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Will the Internet Destroy the News Media?

Susan Athey, Emilio Calvano, Joshua Gans September 2010

Can Online Advertising Markets Save the Media?
Susan Athey, Emilio Calvano, Joshua Gans September 2010

Introduction Baseline Model Extensions Conclusion

Issues Research Questions Literature Outline

Media is under pressure

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Introduction Baseline Model Extensions Conclusion

Issues Research Questions Literature Outline

Media is under pressure

Fall in advertising revenue

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Newspaper ad revenue and GDP (constant dollars)
GDP and newspaper ad revenue drop during recessions. Inflation-adjusted newspaper ad revenue stagnated way before the internet became popular.

Introduction Baseline Model Extensions Conclusion

Issues Research Questions Literature Outline

Media is under pressure

Fall in advertising revenue
Note: growth stopped pre-Internet

Source: Newspaper Association of America

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Introduction Baseline Model Extensions Conclusion

Issues Research Questions Literature Outline

Media is under pressure

Fall in advertising revenue

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Introduction Baseline Model Extensions Conclusion

Issues Research Questions Literature Outline

Media is under pressure

Fall in advertising revenue Unbundling of classifieds

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Ad revenue by type (constant dollars)

Introduction Baseline Model Extensions Conclusion

Issues Research Questions Literature Outline

Online ad revenue is less than 5% of total newspaper ad revenue. Local retail ad revenue has grown, but national brand advertising and classified have declined.

Media is under pressure

Fall in advertising revenue Unbundling of classifieds

Source: Newspaper Association of America

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Introduction Baseline Model Extensions Conclusion

Issues Research Questions Literature Outline

Media is under pressure

Fall in advertising revenue Unbundling of classifieds

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Introduction Baseline Model Extensions Conclusion

Issues Research Questions Literature Outline

Media is under pressure

Fall in advertising revenue Unbundling of classifieds Web ad revenue low

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Ad revenue by type (proportions)

Introduction Baseline Model Extensions Conclusion

Issues Research Questions Literature Outline

In the last 5 years, classified revenue has declined in relative terms and online has grown, but is still a tiny fraction of total.

Media is under pressure

Fall in advertising revenue Unbundling of classifieds Web ad revenue low

Source: Newspaper Association of America

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Introduction Baseline Model Extensions Conclusion

Issues Research Questions Literature Outline

Media is under pressure

Fall in advertising revenue Unbundling of classifieds Web ad revenue low

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Introduction Baseline Model Extensions Conclusion

Issues Research Questions Literature Outline

Media is under pressure

Fall in advertising revenue Unbundling of classifieds Web ad revenue low

Loss of ‘good’ journalism

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Introduction Baseline Model Extensions Conclusion

Issues Research Questions Literature Outline

Media is under pressure

Fall in advertising revenue Unbundling of classifieds Web ad revenue low

Loss of ‘good’ journalism Local newspaper bankruptcies

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Introduction Baseline Model Extensions Conclusion

Issues Research Questions Literature Outline

Media is under pressure

Fall in advertising revenue Unbundling of classifieds Web ad revenue low

Loss of ‘good’ journalism Local newspaper bankruptcies Rise of aggregators/blogs

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ent to newspapers

Introduction Baseline Model Extensions Conclusion

Issues Research Questions Literature Outline

mScore, search 5%-40% of traffic w sites

Media is under pressure

his monetizes as ffic, this means are driving about Fall in advertising revenue online ad

Loss of ‘good’ journalism Local newspaper bankruptcies Rise of aggregators/blogs

Unbundling of classifieds

venue is only 5% Web ad revenue low

sent to des the query hat click, so we kinds of clicks s receive from
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Introduction Baseline Model Extensions Conclusion

Issues Research Questions Literature Outline

Media is under pressure

Fall in advertising revenue Unbundling of classifieds Web ad revenue low

Loss of ‘good’ journalism Local newspaper bankruptcies Rise of aggregators/blogs

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Introduction Baseline Model Extensions Conclusion

Issues Research Questions Literature Outline

New media hysterics

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Introduction Baseline Model Extensions Conclusion

Issues Research Questions Literature Outline

New media hysterics
... online ads sell at rates that are a fraction of those for print, for simple reasons of competition. “In a print world you had pretty much a limited amount of inventory — pages in a magazine,” says Domenic Venuto, managing director of the online marketing firm Razorfish. “In the online world, inventory has become infinite.”

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Introduction Baseline Model Extensions Conclusion

Issues Research Questions Literature Outline

New media hysterics
... online ads sell at rates that are a fraction of those for print, for simple reasons of competition. “In a print world you had pretty much a limited amount of inventory — pages in a magazine,” says Domenic Venuto, managing director of the online marketing firm Razorfish. “In the online world, inventory has become infinite.” (from the NYT, May 2010)

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Introduction Baseline Model Extensions Conclusion

Issues Research Questions Literature Outline

New media hysterics
... online ads sell at rates that are a fraction of those for print, for simple reasons of competition. “In a print world you had pretty much a limited amount of inventory — pages in a magazine,” says Domenic Venuto, managing director of the online marketing firm Razorfish. “In the online world, inventory has become infinite.” (from the NYT, May 2010)

•Attention is still scarce
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Introduction Baseline Model Extensions Conclusion

Issues Research Questions Literature Outline

New media hysterics
... online ads sell at rates that are a fraction of those for print, for simple reasons of competition. “In a print world you had pretty much a limited amount of inventory — pages in a magazine,” says Domenic Venuto, managing director of the online marketing firm Razorfish. “In the online world, inventory has become infinite.” (from the NYT, May 2010)

•Attention is still scarce •Advertisers still want to grab attention
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Introduction Baseline Model Extensions Conclusion

Issues Research Questions Literature Outline

... while the advertising challenges remain

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Introduction Baseline Model Extensions Conclusion

Issues Research Questions Literature Outline

... while the advertising challenges remain
“I know that half of my advertising dollars are wasted … I just don’t know which half.” (John Wanamaker) “Newspaper readers are ‘better’ than Web visitors. Online readers are a notoriously fickle bunch, and apparently are getting more so by the day. Web visitors barely stick around, yet they are counted in broad traffic statistics as if they were the same as the reader who lingers over his Sunday paper.” (Paul Farhi, Washington Post)
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Introduction Baseline Model Extensions Conclusion

Issues Research Questions Literature Outline

Research Questions

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Introduction Baseline Model Extensions Conclusion

Issues Research Questions Literature Outline

Research Questions

Focus on the advertising funding impact of the Internet

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Introduction Baseline Model Extensions Conclusion

Issues Research Questions Literature Outline

Research Questions

Focus on the advertising funding impact of the Internet What can explain the reduction in advertising revenue?

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Introduction Baseline Model Extensions Conclusion

Issues Research Questions Literature Outline

Research Questions

Focus on the advertising funding impact of the Internet What can explain the reduction in advertising revenue? Can technology reverse any decline?

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Introduction Baseline Model Extensions Conclusion

Issues Research Questions Literature Outline

Research Questions

Focus on the advertising funding impact of the Internet What can explain the reduction in advertising revenue? Can technology reverse any decline? Provide a full equilibrium analysis

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Traditional Media Economics

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Traditional Media Economics
Advertisers

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Traditional Media Economics
Readers/Viewers Advertisers

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Traditional Media Economics
Readers/Viewers Outlet Advertisers

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Traditional Media Economics
Readers/Viewers Outlet Advertisers

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Traditional Media Economics
Readers/Viewers Outlet Advertisers

Will New Media Destroy the News Media?

6 /48

Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Traditional Media Economics
Readers/Viewers Outlet Advertisers

Will New Media Destroy the News Media?

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Traditional Media Economics
Readers/Viewers Outlet Advertisers

$

Will New Media Destroy the News Media?

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Traditional Media Economics
Readers/Viewers Outlet Advertisers

$

$$

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Traditional Media Economics
Readers/Viewers Outlet Advertisers

$

$$

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Traditional Media Economics
Readers/Viewers Outlet Advertisers

$

$$

Will New Media Destroy the News Media?

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Traditional Media Economics
Readers/Viewers Outlet Advertisers

$

$$

or

Will New Media Destroy the News Media?

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Traditional Media Economics
Readers/Viewers Outlet Advertisers

$0

$$

or

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Traditional Media Economics
Readers/Viewers Outlet Advertisers

$0

$$

or

and

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Traditional Media Economics
Readers/Viewers Outlet Advertisers

$0

$$

or

and

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Traditional Media Economics
Readers/Viewers Outlet Advertisers

$0

$$

or

and

Anderson-Coate: total ad revenue independent of no. of outlets
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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

This Paper
Readers/Viewers Outlet Advertisers

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

This Paper
Readers/Viewers Outlet Advertisers

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

This Paper
Readers/Viewers Outlet Advertisers

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

This Paper
Readers/Viewers Outlet Advertisers

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Switching and the Internet

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Switching and the Internet
Our contention is that the Internet has facilitated consumer switching

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Switching and the Internet
Our contention is that the Internet has facilitated consumer switching Technologically easy to spread attention across multiple outlets

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Switching and the Internet
Our contention is that the Internet has facilitated consumer switching Technologically easy to spread attention across multiple outlets Cheap access to multiple outlets (browsing)

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Switching and the Internet
Our contention is that the Internet has facilitated consumer switching Technologically easy to spread attention across multiple outlets Cheap access to multiple outlets (browsing) Reduced costs of learning about a variety of outlets (aggregators, social networks and search)

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Switching and the Internet
Our contention is that the Internet has facilitated consumer switching Technologically easy to spread attention across multiple outlets Cheap access to multiple outlets (browsing) Reduced costs of learning about a variety of outlets (aggregators, social networks and search) Questions

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Switching and the Internet
Our contention is that the Internet has facilitated consumer switching Technologically easy to spread attention across multiple outlets Cheap access to multiple outlets (browsing) Reduced costs of learning about a variety of outlets (aggregators, social networks and search) Questions What happens to advertising revenue as increase switching?

Will New Media Destroy the News Media?

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Switching and the Internet
Our contention is that the Internet has facilitated consumer switching Technologically easy to spread attention across multiple outlets Cheap access to multiple outlets (browsing) Reduced costs of learning about a variety of outlets (aggregators, social networks and search) Questions What happens to advertising revenue as increase switching? What happens to the returns to adopting tracking technologies?

Will New Media Destroy the News Media?

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Switching and the Internet
Our contention is that the Internet has facilitated consumer switching Technologically easy to spread attention across multiple outlets Cheap access to multiple outlets (browsing) Reduced costs of learning about a variety of outlets (aggregators, social networks and search) Questions What happens to advertising revenue as increase switching? What happens to the returns to adopting tracking technologies? What are the incentives to engage in practices that reduce switching?

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Mixed Single & Multi-Homing Consumers

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Mixed Single & Multi-Homing Consumers
Identification of competitive bottlenecks in two-sided markets

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Mixed Single & Multi-Homing Consumers
Identification of competitive bottlenecks in two-sided markets
Gans-King (2000): mobile termination

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Mixed Single & Multi-Homing Consumers
Identification of competitive bottlenecks in two-sided markets
Gans-King (2000): mobile termination Choi (2006), Armstrong-Wright (2009): use of exclusivity/tying to ensure this

Will New Media Destroy the News Media?

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Mixed Single & Multi-Homing Consumers
Identification of competitive bottlenecks in two-sided markets
Gans-King (2000): mobile termination Choi (2006), Armstrong-Wright (2009): use of exclusivity/tying to ensure this

Allowing for multi-homing consumers

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Mixed Single & Multi-Homing Consumers
Identification of competitive bottlenecks in two-sided markets
Gans-King (2000): mobile termination Choi (2006), Armstrong-Wright (2009): use of exclusivity/tying to ensure this

Allowing for multi-homing consumers
Anderson-Coate (2005): pure multi-homers increases competition for advertisers

Will New Media Destroy the News Media?

9 /48

Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Mixed Single & Multi-Homing Consumers
Identification of competitive bottlenecks in two-sided markets
Gans-King (2000): mobile termination Choi (2006), Armstrong-Wright (2009): use of exclusivity/tying to ensure this

Allowing for multi-homing consumers
Anderson-Coate (2005): pure multi-homers increases competition for advertisers Ambrus-Reisinger (2006): assume diminishing returns to multi-homing advertisers

Will New Media Destroy the News Media?

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Mixed Single & Multi-Homing Consumers
Identification of competitive bottlenecks in two-sided markets
Gans-King (2000): mobile termination Choi (2006), Armstrong-Wright (2009): use of exclusivity/tying to ensure this

Allowing for multi-homing consumers
Anderson-Coate (2005): pure multi-homers increases competition for advertisers Ambrus-Reisinger (2006): assume diminishing returns to multi-homing advertisers In each, broadcasters compete on ‘ad disutility’

Will New Media Destroy the News Media?

9 /48

Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Mixed Single & Multi-Homing Consumers
Identification of competitive bottlenecks in two-sided markets
Gans-King (2000): mobile termination Choi (2006), Armstrong-Wright (2009): use of exclusivity/tying to ensure this

Allowing for multi-homing consumers
Anderson-Coate (2005): pure multi-homers increases competition for advertisers Ambrus-Reisinger (2006): assume diminishing returns to multi-homing advertisers In each, broadcasters compete on ‘ad disutility’

Our focus is on the efficiency of matches

Will New Media Destroy the News Media?

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Mixed Single & Multi-Homing Consumers
Identification of competitive bottlenecks in two-sided markets
Gans-King (2000): mobile termination Choi (2006), Armstrong-Wright (2009): use of exclusivity/tying to ensure this

Allowing for multi-homing consumers
Anderson-Coate (2005): pure multi-homers increases competition for advertisers Ambrus-Reisinger (2006): assume diminishing returns to multi-homing advertisers In each, broadcasters compete on ‘ad disutility’

Our focus is on the efficiency of matches
Two-sided markets: need to focus on ‘quality’ of agents (Weyl)

Will New Media Destroy the News Media?

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Mixed Single & Multi-Homing Consumers
Identification of competitive bottlenecks in two-sided markets
Gans-King (2000): mobile termination Choi (2006), Armstrong-Wright (2009): use of exclusivity/tying to ensure this

Allowing for multi-homing consumers
Anderson-Coate (2005): pure multi-homers increases competition for advertisers Ambrus-Reisinger (2006): assume diminishing returns to multi-homing advertisers In each, broadcasters compete on ‘ad disutility’

Our focus is on the efficiency of matches
Two-sided markets: need to focus on ‘quality’ of agents (Weyl) With mixed-homing consumers, there is ‘pollution’ and hence, a role for technologies and strategies to control ‘pollution’

Will New Media Destroy the News Media?

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Mixed Single & Multi-Homing Consumers
Identification of competitive bottlenecks in two-sided markets
Gans-King (2000): mobile termination Choi (2006), Armstrong-Wright (2009): use of exclusivity/tying to ensure this

Allowing for multi-homing consumers
Anderson-Coate (2005): pure multi-homers increases competition for advertisers Ambrus-Reisinger (2006): assume diminishing returns to multi-homing advertisers In each, broadcasters compete on ‘ad disutility’

Our focus is on the efficiency of matches
Two-sided markets: need to focus on ‘quality’ of agents (Weyl) With mixed-homing consumers, there is ‘pollution’ and hence, a role for technologies and strategies to control ‘pollution’ Could use targeting: Athey-Gans (2010), Bergemann-Bonatti (2010)
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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Our Contribution

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Our Contribution

Our model provides for mixed single and multi-homing consumers (stochastically driven)

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Our Contribution

Our model provides for mixed single and multi-homing consumers (stochastically driven) Examines what this does to the single and multi-homing choices of advertisers

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Our Contribution

Our model provides for mixed single and multi-homing consumers (stochastically driven) Examines what this does to the single and multi-homing choices of advertisers Sorting determined in an equilibrium model

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Outline

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Outline
Baseline model of consumer switching

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Outline
Baseline model of consumer switching Perfect tracking

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Outline
Baseline model of consumer switching Perfect tracking The impact of switching on ad pricing/profits

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Outline
Baseline model of consumer switching Perfect tracking The impact of switching on ad pricing/profits Incentives to adopt tracking technology

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Outline
Baseline model of consumer switching Perfect tracking The impact of switching on ad pricing/profits Incentives to adopt tracking technology The impact of blogs

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Outline
Baseline model of consumer switching Perfect tracking The impact of switching on ad pricing/profits Incentives to adopt tracking technology The impact of blogs Extensions (Future)

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Outline
Baseline model of consumer switching Perfect tracking The impact of switching on ad pricing/profits Incentives to adopt tracking technology The impact of blogs Extensions (Future) Local news provision/geo-targeting

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Questions Literature Outline

Outline
Baseline model of consumer switching Perfect tracking The impact of switching on ad pricing/profits Incentives to adopt tracking technology The impact of blogs Extensions (Future) Local news provision/geo-targeting Ad-platform market structure

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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Model Elements

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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Model Elements
Fundamentals

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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Model Elements
Fundamentals Limited consumer attention

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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Model Elements
Fundamentals Limited consumer attention Fixed over relevant time

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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Model Elements
Fundamentals Limited consumer attention Fixed over relevant time Some opportunity to switch between outlets

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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Model Elements
Fundamentals Limited consumer attention Fixed over relevant time Some opportunity to switch between outlets Advertisers value impressions to consumers

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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Model Elements
Fundamentals Limited consumer attention Fixed over relevant time Some opportunity to switch between outlets Advertisers value impressions to consumers Indifferent as to when impressions are over a relevant time

Will New Media Destroy the News Media?

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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Model Elements
Fundamentals Limited consumer attention Fixed over relevant time Some opportunity to switch between outlets Advertisers value impressions to consumers Indifferent as to when impressions are over a relevant time Content

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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Model Elements
Fundamentals Limited consumer attention Fixed over relevant time Some opportunity to switch between outlets Advertisers value impressions to consumers Indifferent as to when impressions are over a relevant time Content Nothing special about news

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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Model Elements
Fundamentals Limited consumer attention Fixed over relevant time Some opportunity to switch between outlets Advertisers value impressions to consumers Indifferent as to when impressions are over a relevant time Content Nothing special about news Model applies to any content

Will New Media Destroy the News Media?

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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Model Elements
Fundamentals Limited consumer attention Fixed over relevant time Some opportunity to switch between outlets Advertisers value impressions to consumers Indifferent as to when impressions are over a relevant time Content Nothing special about news Model applies to any content Simplifying assumptions

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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Model Elements
Fundamentals Limited consumer attention Fixed over relevant time Some opportunity to switch between outlets Advertisers value impressions to consumers Indifferent as to when impressions are over a relevant time Content Nothing special about news Model applies to any content Simplifying assumptions Two outlets

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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Model Elements
Fundamentals Limited consumer attention Fixed over relevant time Some opportunity to switch between outlets Advertisers value impressions to consumers Indifferent as to when impressions are over a relevant time Content Nothing special about news Model applies to any content Simplifying assumptions Two outlets Exogenous readership allocation/outlet quality

Will New Media Destroy the News Media?

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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Model Elements
Fundamentals Limited consumer attention Fixed over relevant time Some opportunity to switch between outlets Advertisers value impressions to consumers Indifferent as to when impressions are over a relevant time Content Nothing special about news Model applies to any content Simplifying assumptions Two outlets Exogenous readership allocation/outlet quality Symmetric outlets in terms of readership
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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Consumers
Consumers (readers/viewers) Endowed with 2 periods of attention If given the opportunity to choose, choose outlet i with probability xi Opportunity to choose (switch) arrives in each period with probability ρ Outlets have two types of consumers Single-homing (choose only one outlet) Multi-homing (visit both outlets)

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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Morning

Afternoon

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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Morning

Afternoon

x1

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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Morning

Afternoon

x1
1− ρ

Stay

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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Morning
ρ

Afternoon Choose

x1
1− ρ

Stay

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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Morning
ρ

Afternoon Choose

x1

Stay

x1
1− ρ

Stay

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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Morning
ρ

Afternoon Choose

x1

Stay

x1
1− ρ

Stay

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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Morning
ρ

Afternoon Choose

x1

Stay

x1ρ x1

x1
1− ρ

Stay

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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Morning
ρ

Afternoon Choose

x1

Stay

x1ρ x1

x1
1− ρ

Stay

x1 (1 − ρ )

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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Morning
ρ

Afternoon Choose

x1

Stay

x1ρ x1

x1
1− ρ

Stay

x1 (1 − ρ )

x2
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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Morning
ρ

Afternoon Choose

x1

Stay

x1ρ x1

x1
1− ρ

Stay

x1 (1 − ρ )

x2

ρ

Choose
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Will New Media Destroy the News Media?

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Morning
ρ

Afternoon Choose

x1

Stay

x1ρ x1

x1
1− ρ

Stay

x1 (1 − ρ )

x2

ρ

Choose

x1

Switch to 1
14 /48

Will New Media Destroy the News Media?

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Morning
ρ

Afternoon Choose

x1

Stay

x1ρ x1

x1
1− ρ

Stay

x1 (1 − ρ )

x2

ρ

Choose

x1

Switch to 1

x2 ρ x1
14 /48

Will New Media Destroy the News Media?

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Advertisers

Each has a given value of impressing a given consumer, v This value is realised per consumer regardless of attention period the impression occurs in Heterogeneous, distributed F(v) (special case, U[0,1])

Will New Media Destroy the News Media?

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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Outlets

An outlet, i, has advertising capacity of ai per period of attention. Thus, if they capture a consumer’s attention for t periods, the total number of advertisers they can supply to is tai.

•When ρ = 0, outlet captures xi2ai units of attention. •When ρ > 0, captures 2ai units of attention from some consumers and ai
from others.

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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Types of Ad Pricing
Per placement: advertisers pay for space Physical newspaper ads TV or radio slots Per impression: advertisers pay each time ad is viewed Banner ads on webpages Per click: advertisers pay each time ad is clicked Ads alongside search results Here, we will model all ad pricing as per impression

Will New Media Destroy the News Media?

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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

First Best (per consumer)
Having described the fundamentals, we can now describe the first best in the advertising market. Suppose that a ads can be impressed on a consumer each period

Price

vs 1-q 2a
Will New Media Destroy the News Media?

Quantity (Advertisers)
18/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

The Impression Game
Morning Afternoon

Outlet 1

Outlet 2

Will New Media Destroy the News Media?

19/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

The Impression Game
Morning Afternoon

Outlet 1

Outlet 2

Will New Media Destroy the News Media?

19/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

The Impression Game
Morning Afternoon

Outlet 1

Outlet 2

Will New Media Destroy the News Media?

19/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

The Impression Game
Morning Afternoon

Outlet 1

Outlet 2

Will New Media Destroy the News Media?

19/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

The Impression Game
Morning Afternoon

Outlet 1

Outlet 2

Will New Media Destroy the News Media?

19/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

The Impression Game
Morning Afternoon

Outlet 1

Outlet 2

Will New Media Destroy the News Media?

19/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

The Impression Game
Morning Afternoon

Outlet 1

Outlet 2

Will New Media Destroy the News Media?

19/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

The Impression Game
Morning Afternoon

Outlet 1

Outlet 2

Will New Media Destroy the News Media?

19/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

The Impression Game
Morning Afternoon

Outlet 1

Outlet 2 If Starbucks single-homes, it misses impressions. If Starbucks multi-homes, it wastes impressions.
Will New Media Destroy the News Media? 19/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Benchmark Case (ρ = 0)
In the monopoly benchmark, all advertisers multi-home. With consumers single-homing, the first best is realised. With endogenous ad capacity, this equivalence would not hold.

Price

vm 1-2a a
Will New Media Destroy the News Media?

Quantity (Impressions)
20/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Customer Types

Will New Media Destroy the News Media?

21/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Customer Types

Dil = Share loyal to i in a given period D s = Share switching in a given period

Will New Media Destroy the News Media?

21/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Customer Types

Dil = xi − xi (1 − xi )ρ D s = 2 ρ x1 x2

Will New Media Destroy the News Media?

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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Perfect Ad-Tracking

Will New Media Destroy the News Media?

22/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Perfect Ad-Tracking

Imagine a platform (competitively supplied)

Will New Media Destroy the News Media?

22/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Perfect Ad-Tracking

Imagine a platform (competitively supplied) Can track consumers as they move across outlets

Will New Media Destroy the News Media?

22/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Perfect Ad-Tracking

Imagine a platform (competitively supplied) Can track consumers as they move across outlets Can sell impressions to a consumer (regardless of outlet)

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22/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Perfect Ad-Tracking

Imagine a platform (competitively supplied) Can track consumers as they move across outlets Can sell impressions to a consumer (regardless of outlet) Derive outlet advertising profits

Will New Media Destroy the News Media?

22/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Perfect Ad-Tracking

Will New Media Destroy the News Media?

23/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Perfect Ad-Tracking

D

l 1

Will New Media Destroy the News Media?

23/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Perfect Ad-Tracking

D

l 1

D

l 2

Will New Media Destroy the News Media?

23/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Perfect Ad-Tracking

D

l 1

D

l 2

D

s

Will New Media Destroy the News Media?

23/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Perfect Ad-Tracking

D

l 1

D

l 2

D

s

2a1

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23/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Perfect Ad-Tracking

D

l 1

D

l 2

D

s

2a1

2a2

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23/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Perfect Ad-Tracking

D

l 1

D

l 2

D

s

2a1

2a2

a1 + a2

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23/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Perfect Ad-Tracking

Pooled w/o Tracking

D

l 1

D

l 2

D

s

2a1

2a2

a1 + a2

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23/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Perfect Ad-Tracking
D 2a1
l 1

D a1 + a2

s

D 2a2

l 2

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23/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Perfect Ad-Tracking
D 2a1
l 1

D a1 + a2

s

D 2a2

l 2

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23/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Perfect Ad-Tracking
D 2a1
l 1

D a1 + a2

s

D 2a2

l 2

p1 = 1 − F(2a1 )

p12 = 1 − F(a1 + a2 )

p2 = 1 − F(2a2 )

Will New Media Destroy the News Media?

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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Profits and Switching
π i = F (1 − ai − a j )ai D + F (1 − 2ai )2ai D
−1 s −1 l i

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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Profits and Switching
π i = F (1 − ai − a j )ai D + F (1 − 2ai )2ai D
−1 s −1 l i

↑ρ

Will New Media Destroy the News Media?

24/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Profits and Switching
π i = F (1 − ai − a j )ai D + F (1 − 2ai )2ai D
−1 s −1 l i

↑ρ

Shift from loyals to switchers

Will New Media Destroy the News Media?

24/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Profits and Switching
π i = F (1 − ai − a j )ai D + F (1 − 2ai )2ai D
−1 s −1 l i

↑ρ

Shift from loyals to switchers

↑ πi

Will New Media Destroy the News Media?

24/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Profits and Switching
π i = F (1 − ai − a j )ai D + F (1 − 2ai )2ai D
−1 s −1 l i

↑ρ

Shift from loyals to switchers

↑ πi

if F −1 (1 − ai − a j ) − F −1 (1 − 2ai ) x j > 0 or ai > a j

(

)

Will New Media Destroy the News Media?

24/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Profit Comparisons
π i = F (1 − a1 − a2 )ai D + F (1 − 2ai )2ai D
−1 s −1 l

π i = D F (1 − 2ai )2ai
l −1

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25/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Profit Comparisons
π i = (D + 2D )F (1 − 2a)a
s l −1

π i = D F (1 − 2a)2a
l −1

Will New Media Destroy the News Media?

25/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Profit Comparisons
π i = xi F (1 − 2a)2a
−1

= π i = xi F (1 − 2a)2a
−1

Will New Media Destroy the News Media?

25/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Pure Multi-Homing

Will New Media Destroy the News Media?

26/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Pure Multi-Homing

Contrary to the model ...

Will New Media Destroy the News Media?

26/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Pure Multi-Homing

Contrary to the model ... suppose all consumers are switchers.

Will New Media Destroy the News Media?

26/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Pure Multi-Homing

Contrary to the model ... suppose all consumers are switchers. Optimal advertiser strategy is to single-home.

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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Pure Multi-Homing

Contrary to the model ... suppose all consumers are switchers. Optimal advertiser strategy is to single-home. No wasted impressions.

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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Pure Multi-Homing

Contrary to the model ... suppose all consumers are switchers. Optimal advertiser strategy is to single-home. No wasted impressions. Same outcome as under perfect tracking.

Will New Media Destroy the News Media?

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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Intra-Outlet Tracking

No tracking (Butters, 1977; Athey-Gans, 2010; Bergemann-Bonatti, 2010) Content-based tracking Frequency-based tracking Internal tracking Here, we will consider the frequency-based tracking case

Will New Media Destroy the News Media?

27/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Missed and Wasted Impressions
Expected Unique Impressions

Will New Media Destroy the News Media?

28/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Missed and Wasted Impressions
Expected Unique Impressions

Single-Home on i

Will New Media Destroy the News Media?

28/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Missed and Wasted Impressions
Expected Unique Impressions

Single-Home on i

θi = D + D
l i 1 2

s

Will New Media Destroy the News Media?

28/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Missed and Wasted Impressions
Expected Unique Impressions

Single-Home on i Multi-Home

θi = D + D
l i 1 2

s

Will New Media Destroy the News Media?

28/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Missed and Wasted Impressions
Expected Unique Impressions

Single-Home on i Multi-Home

θi = D + D
l i 1 2 l 1 l 2

s

θ12 = D + D + D
3 4

s

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28/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Missed and Wasted Impressions
Expected Unique Impressions

Single-Home on i Multi-Home Multi-Home (2 on i)

θi = D + D
l i 1 2 l 1 l 2

s

θ12 = D + D + D
3 4

s

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28/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Missed and Wasted Impressions
Expected Unique Impressions

Single-Home on i Multi-Home Multi-Home (2 on i)

θi = D + D
l i 1 2 l 1 l 2

s

θ12 = D + D + D
3 4

s

Will New Media Destroy the News Media?

28/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Missed and Wasted Impressions
Expected Unique Impressions

Single-Home on i Multi-Home Multi-Home (2 on i)

θi = D + D
l i 1 2 l 1 l 2

s

θ12 = D + D + D
3 4

s

Will New Media Destroy the News Media?

28/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Missed and Wasted Impressions
Expected Unique Impressions

Single-Home on i Multi-Home Multi-Home (2 on i)

θi = D + D
l i 1 2 l 1 l 2

s

θ12 = D + D + D
3 4

s

θ12 = 1 ′

Will New Media Destroy the News Media?

28/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Missed and Wasted Impressions
Expected Unique Impressions

Single-Home on i Multi-Home Multi-Home (2 on i)

θi = D + D
l i 1 2 l 1 l 2

s

θ12 = D + D + D
3 4

s

θ12 = 1 ′

θ12 ≤ θ1 + θ 2 = θ12 for ρ > 0 ′
Will New Media Destroy the News Media? 28/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Impression Prices

Will New Media Destroy the News Media?

29/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Impression Prices
Assume that outlets cannot price discriminate between switchers and loyal consumers.

Will New Media Destroy the News Media?

29/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Impression Prices
Assume that outlets cannot price discriminate between switchers and loyal consumers. Under symmetry (x1 = x2), can impression prices differ?

Will New Media Destroy the News Media?

29/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Impression Prices
Assume that outlets cannot price discriminate between switchers and loyal consumers. Under symmetry (x1 = x2), can impression prices differ? If p1 > p2, 1 will only attract multi-homers while any single-homers on 1 will bid up 2’s price.

Will New Media Destroy the News Media?

29/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Impression Prices
Assume that outlets cannot price discriminate between switchers and loyal consumers. Under symmetry (x1 = x2), can impression prices differ? If p1 > p2, 1 will only attract multi-homers while any single-homers on 1 will bid up 2’s price. If there are no single-homers on 1 (i.e., a1 sufficiently low relative to a2), then there may be a price differential.

Will New Media Destroy the News Media?

29/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Impression Prices
Assume that outlets cannot price discriminate between switchers and loyal consumers. Under symmetry (x1 = x2), can impression prices differ? If p1 > p2, 1 will only attract multi-homers while any single-homers on 1 will bid up 2’s price. If there are no single-homers on 1 (i.e., a1 sufficiently low relative to a2), then there may be a price differential. So long as ad capacities are not too different, there is a single impression price. Call this p.
Will New Media Destroy the News Media? 29/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Single & Multi-Homing Advertisers
1

0
Will New Media Destroy the News Media? 30/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Single & Multi-Homing Advertisers
1

Single-homer surplus = (D + D )(vi − p)
l i 1 2 s

0
Will New Media Destroy the News Media? 30/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Single & Multi-Homing Advertisers
1

Single-homer surplus = (D + D )(vi − p)
l i 1 2 s

Multi-homer surplus = (D + D + D )v − p
l 1 l 2 3 4 s

0
Will New Media Destroy the News Media? 30/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Single & Multi-Homing Advertisers
1

Single-homer surplus = (D + D )(vi − p)
l i 1 2 s

Multi-homer surplus = (D + D + D )v − p
l 1 l 2 3 4 s

Multi-homer surplus (2 on i)
0
Will New Media Destroy the News Media?

= v − (2D + D + D )p
l i l j 3 2 s
30/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Single & Multi-Homing Advertisers
1

(D + D )(vi − p) = 0
l i 1 2 s

Multi-homer surplus = (D + D + D )v − p
l 1 l 2 3 4 s

Multi-homer surplus (2 on i)
0
Will New Media Destroy the News Media?

= v − (2D + D + D )p
l i l j 3 2 s
30/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Single & Multi-Homing Advertisers
1

(D + D )(vi − p) = 0
l i 1 2 s

Multi-homer surplus = (D + D + D )v − p
l 1 l 2 3 4 s

Multi-homer surplus (2 on i)
0
Will New Media Destroy the News Media?

= v − (2D + D + D )p
l i l j 3 2 s
30/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Single & Multi-Homing Advertisers
1

(D + D )(vi − p) = 0
l i 1 2 s

Multi-homer surplus = (D + D + D )v − p
l 1 l 2 3 4 s

vi
0
Will New Media Destroy the News Media?

Multi-homer surplus (2 on i) = v − (2D + D + D )p
l i l j 3 2 s
30/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Single & Multi-Homing Advertisers
1

(D + D )(vi − p) = 0
l i 1 2 s

Multi-homer surplus = (D + D + D )v − p
l 1 l 2 3 4 s

p
0

vi

Multi-homer surplus (2 on i) = v − (2D + D + D )p
l i l j 3 2 s
30/48

Will New Media Destroy the News Media?

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Single & Multi-Homing Advertisers
1

(D + D )(vi − p) = 0
l i 1 2 s

D (v − p) + D (v − 2 p) > 0
l j 1 4 s

p
0

vi

Multi-homer surplus (2 on i) = v − (2D + D + D )p
l i l j 3 2 s
30/48

Will New Media Destroy the News Media?

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Single & Multi-Homing Advertisers
1

(D + D )(vi − p) = 0
l i 1 2 s

D (v − p) + D (v − 2 p) > 0
l j 1 4 s

p
0

vi

Multi-homer surplus (2 on i) = v − (2D + D + D )p
l i l j 3 2 s
30/48

Will New Media Destroy the News Media?

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Single & Multi-Homing Advertisers
1

(D + D )(vi − p) = 0
l i 1 2 s

v12

D (v − p) + D (v − 2 p) > 0
l j 1 4 s

p
0

vi

Multi-homer surplus (2 on i) = v − (2D + D + D )p
l i l j 3 2 s
30/48

Will New Media Destroy the News Media?

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Single & Multi-Homing Advertisers
1

(D + D )(vi − p) = 0
l i 1 2 s

D lj + 1 D s 2 D lj +1 4 D
s

p v12
p
0

D (v − p) + D (v − 2 p) > 0
l j 1 4 s

vi

Multi-homer surplus (2 on i) = v − (2D + D + D )p
l i l j 3 2 s
30/48

Will New Media Destroy the News Media?

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Single & Multi-Homing Advertisers
1

(D + D )(vi − p) = 0
l i 1 2 s

D lj + 1 D s 2 D lj +1 4 D
s

p v12
p
0

D (v − p) + D (v − 2 p) > 0
l j 1 4 s

vi
1 4

D v > (D + D ) p
s l i 1 2 s

Will New Media Destroy the News Media?

30/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Single & Multi-Homing Advertisers
1

(D + D )(vi − p) = 0
l i 1 2 s

D lj + 1 D s 2 D lj +1 4 D
s

p v12
p
0

D (v − p) + D (v − 2 p) > 0
l j 1 4 s

vi
1 4

D v > (D + D ) p
s l i 1 2 s

Will New Media Destroy the News Media?

30/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Single & Multi-Homing Advertisers
1

v12 ′
D lj + 1 D s 2 D lj +1 4 D
s

(D + D )(vi − p) = 0
l i 1 2 s

p v12
p
0

D (v − p) + D (v − 2 p) > 0
l j 1 4 s

vi
1 4

D v > (D + D ) p
s l i 1 2 s

Will New Media Destroy the News Media?

30/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Single & Multi-Homing Advertisers
1
Dil + 1 D s 2
1 4

D

s

′ p v12

(D + D )(vi − p) = 0
l i 1 2 s

D lj + 1 D s 2 D lj +1 4 D
s

p v12
p
0

D (v − p) + D (v − 2 p) > 0
l j 1 4 s

vi
1 4

D v > (D + D ) p
s l i 1 2 s

Will New Media Destroy the News Media?

30/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Market Clearing
1
Dil + 1 D s 2
1 4

D

s

′ p v12
p

1 D lj + 2 D s

D lj

1 +4

D

s

v12 vi

p
0

Will New Media Destroy the News Media?

31/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Market Clearing
1
Dil + 1 D s 2
1 4

D

s

′ p v12
p

1 D lj + 2 D s

D lj

1 +4

D

s

v12 vi

p
0

Will New Media Destroy the News Media?

31/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Market Clearing
1
Dil + 1 D s 2
1 4

D

s

′ p v12
p

1 D lj + 2 D s

D lj

1 +4

D

s

v12 vi

p
0

Will New Media Destroy the News Media?

31/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Market Clearing
1
Dil + 1 D s 2
1 4

D

s

′ p v12
p

1 D lj + 2 D s

D lj

1 +4

D

s

v12

(D + D )(v12 − vi )
l 1 2 s

p
0

vi

Will New Media Destroy the News Media?

31/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Market Clearing
1
Dil + 1 D s 2
1 4

D

s

′ p v12
p

1 D lj + 2 D s

D lj

1 +4

D

s

v12

(D + D )(v12 − vi )
l 1 2 s

p
0

vi

Will New Media Destroy the News Media?

31/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Market Clearing
1
Dil + 1 D s 2
1 4

D

s

′ p v12
p

1 D lj + 2 D s

D lj

1 +4

D

s

v12

(D + D )(v12 − vi )
l 1 2 s

p
0

vi

Will New Media Destroy the News Media?

31/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Market Clearing
1
Dil + 1 D s 2
1 4

D

s

′ p v12
p

1 D lj + 2 D s

D lj

1 +4

D

s

v12

(D + D )(v12 − vi )
l 1 2 s

p
0

vi

Will New Media Destroy the News Media?

31/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Market Clearing
1
Dil + 1 D s 2
1 4

D

s

′ p v12
p

1 D lj + 2 D s

D lj

1 +4

D

s

v12

(D + D )(v12 − vi )
l 1 2 s

p
0

vi

Will New Media Destroy the News Media?

31/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Market Clearing
1
Dil + 1 D s 2
1 4

D

s

′ p v12

1 D lj + 2 D s

(D + D )2(v12 − v12 ) ′
l 1 2 s

D lj

1 +4

D

s

p

v12

(D + D )(v12 − vi )
l 1 2 s

p
0

vi

Will New Media Destroy the News Media?

31/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Market Clearing
1
Dil + 1 D s 2
1 4

D

s

′ p v12

1 D lj + 2 D s

(D + D )2(v12 − v12 ) ′
l 1 2 s

D lj

1 +4

D

s

p

v12

(D + D )(v12 − vi )
l 1 2 s

p
0

vi

Will New Media Destroy the News Media?

31/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Market Clearing
1
Dil + 1 D s 2
1 4

D

s

′ p v12

1 D lj + 2 D s

(D + D )2(v12 − v12 ) ′
l 1 2 s

D lj

1 +4

D

s

p

v12

(D + D )(v12 − vi )
l 1 2 s

p
0

vi

Will New Media Destroy the News Media?

31/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Market Clearing
1
Dil + 1 D s 2
1 4

D

s

′ p v12

1 D lj + 2 D s

(D + D )2(v12 − v12 ) ′
l 1 2 s

D lj

1 +4

D

s

p

v12

(D + D )(v12 − vi )
l 1 2 s

p
0

vi

Will New Media Destroy the News Media?

31/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Market Clearing
1
Dil + 1 D s 2
1 4

D

s

′ p v12

1 D lj + 2 D s

(D + D )2(v12 − v12 ) ′
l 1 2 s

D lj

1 +4

D

s

p

v12

(D + D )(v12 − vi )
l 1 2 s

p
0

vi

Will New Media Destroy the News Media?

31/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Market Clearing
1
Dil + 1 D s 2
1 4

D

s

′ p v12

1 D lj + 2 D s

(D + D )2(v12 − v12 ) ′
l 1 2 s

D lj

1 +4

D

s

p

v12

(D + D )(v12 − vi )
l 1 2 s

p
0

vi

Will New Media Destroy the News Media?

31/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Market Clearing
1
Dil + 1 D s 2
1 4

D

s

′ p v12

1 D lj + 2 D s

(D + D )2(v12 − v12 ) ′
l 1 2 s

D lj

1 +4

D

s

p

v12

(D + D )(v12 − vi )
l 1 2 s

p
0

vi

Will New Media Destroy the News Media?

31/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Market Clearing
1
Dil +1 2
1 4

D
s

s

D

′ p v12
p

(D + D )3(1 − v12 ) ′
l 1 2 s

1 D lj + 2 D s

(D + D )2(v12 − v12 ) ′
l 1 2 s

D lj

1 +4

D

s

v12

(D + D )(v12 − vi )
l 1 2 s

p
0

vi

Will New Media Destroy the News Media?

31/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Market Clearing
1
Dil +1 2
1 4

D
s

s

D

′ p v12
p

(D + D )3(1 − v12 ) ′
l 1 2 s

1 D lj + 2 D s

(D + D )2(v12 − v12 ) ′
l 1 2 s

D lj

1 +4

D

s

v12

(D + D )(v12 − vi )
l 1 2 s

p
0

vi

Market Demand for Impressions
31/48

Will New Media Destroy the News Media?

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Market Clearing
1
Dil +1 2
1 4

D
s

s

D

′ p v12
p

(D + D )3(1 − v12 ) ′
l 1 2 s

1 D lj + 2 D s

(D + D )2(v12 − v12 ) ′
l 1 2 s

D lj

1 +4

D

s

v12

(D + D )(v12 − vi )
l 1 2 s

p
0

vi

Market Demand for Impressions

Market Supply of Impressions
31/48

Will New Media Destroy the News Media?

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Market Clearing
1
Dil +1 2
1 4

D
s

s

D

′ p v12
p

(D + D )3(1 − v12 ) ′
l 1 2 s

D lj D lj

1 +2D 1 +4

s s

(D + D )2(v12 − v12 ) ′
l 1 2 s

2a1 D + 2a2 D
l 1

l 2

D

v12

+(a1 + a2 )D

s

(D + D )(v12 − vi )
l 1 2 s

p
0

vi

Market Demand for Impressions

Market Supply of Impressions
31/48

Will New Media Destroy the News Media?

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Market Clearing
1
Dil + 1 D s 2
1 4

D

s

′ p v12
p

1 D lj + 2 D s

D lj

1 +4

D

s

v12 vi

3 a1 + a2 = 1 (v12 − vi ) + (v12 ' − v12 ) + 2 (1 − v12 ' ) 2

p
0

Market Demand for Impressions

Market Supply of Impressions
31/48

Will New Media Destroy the News Media?

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Market Clearing
1

v12 ′ v12 vi
0
D (2 − D ) Ds p= (3 − 2(a1 + a2 )) s s p 1 4 s+ D (2 − D ) D
s s

Dil

+1 2

4

Market Demand for Impressions

Market Supply of Impressions
31/48

Will New Media Destroy the News Media?

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Equilibrium Prices
⎧ D s (2 − D s ) ⎪ (3 − 2(a1 + a2 )) s s ⎪ 4 + D (2 − D ) p=⎨ if s 2(2 − D ) ⎪ (1 − (a1 + a2 )) s ⎪ 4− D ⎩
1 2 1 2

D >p
s s

D ≤p

Will New Media Destroy the News Media?

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Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Equilibrium Prices
⎧ D s (2 − D s ) ⎪ (3 − 2(a1 + a2 )) s s ⎪ 4 + D (2 − D ) p=⎨ if s 2(2 − D ) ⎪ (1 − (a1 + a2 )) s ⎪ 4− D ⎩
1 2 1 2

D >p
s s

D ≤p

D

s

low

Profits higher under perfect tracking

Will New Media Destroy the News Media?

32/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Equilibrium Prices
⎧ D s (2 − D s ) ⎪ (3 − 2(a1 + a2 )) s s ⎪ 4 + D (2 − D ) p=⎨ if s 2(2 − D ) ⎪ (1 − (a1 + a2 )) s ⎪ 4− D ⎩
1 2 1 2

D >p
s s

D ≤p

D D

s

low high

Profits higher under perfect tracking Profits may be lower under perfect tracking

s

Will New Media Destroy the News Media?

32/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Switching (Low)
Reduction in demand for impressions -- advertisers prefer to accept missing impressions rather than pay for wasted impressions

Price

1-2a a
Will New Media Destroy the News Media?

Quantity (Impressions)
33/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Switching (Low)
Reduction in demand for impressions -- advertisers prefer to accept missing impressions rather than pay for wasted impressions

Price

a1 = a2 = a

1-2a a
Will New Media Destroy the News Media?

Quantity (Impressions)
33/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Switching (Low)
Reduction in demand for impressions -- advertisers prefer to accept missing impressions rather than pay for wasted impressions

Price
p=
2 − Ds 4 − Ds

a1 = a2 = a

2(1 − 2a)

1-2a a
Will New Media Destroy the News Media?

Quantity (Impressions)
33/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Switching (Low)
Reduction in demand for impressions -- advertisers prefer to accept missing impressions rather than pay for wasted impressions

Price
p=
2 − Ds 4 − Ds

a1 = a2 = a

2(1 − 2a)

vc a
Will New Media Destroy the News Media?

1-2a Quantity (Impressions)
33/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Switching (Low)
The impression price changes both the number of advertisers and their mix Price

1-q
2a Will New Media Destroy the News Media?

Quantity (Advertisers)
34/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Switching (Low)
The impression price changes both the number of advertisers and their mix Price
Demand from Multi-homers

1-q
2a Will New Media Destroy the News Media?

Quantity (Advertisers)
34/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Switching (Low)
The impression price changes both the number of advertisers and their mix Price
Demand from Multi-homers

Demand from Single-homers

1-q
2a Will New Media Destroy the News Media?

Quantity (Advertisers)
34/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Switching (Low)
The impression price changes both the number of advertisers and their mix Price
Demand from Multi-homers

4−ρ (q − 2a) ρ
Demand from Single-homers

1-q
2a Will New Media Destroy the News Media?

Quantity (Advertisers)
34/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Switching (Low)
The impression price changes both the number of advertisers and their mix Price
Demand from Multi-homers

4−ρ (q − 2a) ρ

vc

Demand from Single-homers

1-q
2a Will New Media Destroy the News Media?

Quantity (Advertisers)
34/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Switching (High)
Reduction in demand for impressions -- advertisers prefer to accept missing impressions rather than pay for wasted impressions

Price

1-2a a
Will New Media Destroy the News Media?

Quantity (Impressions)
35/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Switching (High)
Reduction in demand for impressions -- advertisers prefer to accept missing impressions rather than pay for wasted impressions

Price

a1 = a2 = a

1-2a a
Will New Media Destroy the News Media?

Quantity (Impressions)
35/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Switching (High)
Reduction in demand for impressions -- advertisers prefer to accept missing impressions rather than pay for wasted impressions

Price
p=

a1 = a2 = a

( 3 − 4a ) 4 + D (2 − D )
D s (2 − D s )
s s

1-2a a
Will New Media Destroy the News Media?

Quantity (Impressions)
35/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Switching (High)
Reduction in demand for impressions -- advertisers prefer to accept missing impressions rather than pay for wasted impressions

Price
p=

a1 = a2 = a

( 3 − 4a ) 4 + D (2 − D )
D s (2 − D s )
s s

vc a
Will New Media Destroy the News Media?

1-2a Quantity (Impressions)
35/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Switching (High)
The impression price changes both the number of advertisers and their mix Price

1-q
2a Will New Media Destroy the News Media?

Quantity (Advertisers)
36/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Switching (High)
The impression price changes both the number of advertisers and their mix Price
Demand from Multi-homers

1-q
2a Will New Media Destroy the News Media?

Quantity (Advertisers)
36/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Switching (High)
The impression price changes both the number of advertisers and their mix Price
Demand from Multi-homers

Demand from Single-homers

1-q
2a Will New Media Destroy the News Media?

Quantity (Advertisers)
36/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Switching (High)
The impression price changes both the number of advertisers and their mix Price
Demand from Multi-homers

Demand from Single-homers Demand from Multi-homers+

1-q
2a

Quantity (Advertisers)
36/48

Will New Media Destroy the News Media?

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Switching (High)
The impression price changes both the number of advertisers and their mix Price
Demand from Multi-homers

4−ρ (q − 2a) ρ
Demand from Single-homers Demand from Multi-homers+

1-q
2a

Quantity (Advertisers)
36/48

Will New Media Destroy the News Media?

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Switching (High)
The impression price changes both the number of advertisers and their mix Price vc
Demand from Multi-homers+ Demand from Multi-homers

4−ρ (q − 2a) ρ
Demand from Single-homers

1-q
2a

Quantity (Advertisers)
36/48

Will New Media Destroy the News Media?

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Adoption of Perfect Tracking?

Will New Media Destroy the News Media?

37/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Adoption of Perfect Tracking?
When consumer switching is low, outlets can profit from adopting perfect tracking.

Will New Media Destroy the News Media?

37/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Adoption of Perfect Tracking?
When consumer switching is low, outlets can profit from adopting perfect tracking. But as internal tracking improves, the incentives to do so diminish

Will New Media Destroy the News Media?

37/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Adoption of Perfect Tracking?
When consumer switching is low, outlets can profit from adopting perfect tracking. But as internal tracking improves, the incentives to do so diminish When consumer switching is high, outlet profits may fall with perfect tracking.

Will New Media Destroy the News Media?

37/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Adoption of Perfect Tracking?
When consumer switching is low, outlets can profit from adopting perfect tracking. But as internal tracking improves, the incentives to do so diminish When consumer switching is high, outlet profits may fall with perfect tracking. Competitive pressures may not drive adoption as this requires inter-outlet coordination

Will New Media Destroy the News Media?

37/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Adoption of Perfect Tracking?
When consumer switching is low, outlets can profit from adopting perfect tracking. But as internal tracking improves, the incentives to do so diminish When consumer switching is high, outlet profits may fall with perfect tracking. Competitive pressures may not drive adoption as this requires inter-outlet coordination When capacity choice is endogenous, outlet asymmetry drives adoption issues.

Will New Media Destroy the News Media?

37/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Endogenous Ad-Capacity
π i = (1 − a1 − a2 )ai D + (1 − 2ai )2ai D
s l

πi =

2 − Ds 4 − Ds
s

(1 − a1 − a2 )2ai
s s

πi =

D (2 − D ) 4 + D (2 − D
s

(3 − 2(a1 + a2 ))ai )

π i = D (1 − 2ai )2ai
l

Will New Media Destroy the News Media?

38/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Endogenous Ad-Capacity
π i = (1 − a1 − a2 )ai D + (1 − 2ai )2ai D
s l

a pt =

1 4 − Ds

πi =

2 − Ds 4 − Ds
s

(1 − a1 − a2 )2ai
s s

πi =

D (2 − D ) 4 + D (2 − D
s

(3 − 2(a1 + a2 ))ai )

π i = D (1 − 2ai )2ai
l

Will New Media Destroy the News Media?

38/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Endogenous Ad-Capacity
π i = (1 − a1 − a2 )ai D + (1 − 2ai )2ai D
s l

a pt =
ac =

1 4 − Ds
1 3

πi =

2 − Ds 4 − Ds
s

(1 − a1 − a2 )2ai
s s

πi =

D (2 − D ) 4 + D (2 − D
s

(3 − 2(a1 + a2 ))ai )

π i = D (1 − 2ai )2ai
l

Will New Media Destroy the News Media?

38/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Endogenous Ad-Capacity
π i = (1 − a1 − a2 )ai D + (1 − 2ai )2ai D
s l

a pt =
ac = ac =

1 4 − Ds
1 3 1 2

πi =

2 − Ds 4 − Ds
s

(1 − a1 − a2 )2ai
s s

πi =

D (2 − D ) 4 + D (2 − D
s

(3 − 2(a1 + a2 ))ai )

π i = D (1 − 2ai )2ai
l

Will New Media Destroy the News Media?

38/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Endogenous Ad-Capacity
π i = (1 − a1 − a2 )ai D + (1 − 2ai )2ai D
s l

a pt =
ac = ac = am =

1 4 − Ds
1 3 1 2 1 4

πi =

2 − Ds 4 − Ds
s

(1 − a1 − a2 )2ai
s s

πi =

D (2 − D ) 4 + D (2 − D
s

(3 − 2(a1 + a2 ))ai )

π i = D (1 − 2ai )2ai
l

Will New Media Destroy the News Media?

38/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Endogenous Ad-Capacity
π i = (1 − a1 − a2 )ai D + (1 − 2ai )2ai D
s l

a pt =
ac = ac = am =

1 4 − Ds
1 3 1 2 1 4

πi =

2 − Ds 4 − Ds
s

(1 − a1 − a2 )2ai
s s

πi =

D (2 − D ) 4 + D (2 − D
s

(3 − 2(a1 + a2 ))ai )

π i = D (1 − 2ai )2ai
l

Perfect tracking restores efficiency but competition remains
Will New Media Destroy the News Media? 38/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Comparison with Monopoly
π i = (1 − a1 − a2 )ai D + (1 − 2ai )2ai D
s l

πi =

2 − Ds 4 − Ds
s

(1 − a1 − a2 )2ai
s s

πi =

D (2 − D ) 4 + D (2 − D
s

(3 − 2(a1 + a2 ))ai )

π i = D (1 − 2ai )2ai
l

Will New Media Destroy the News Media?

39/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Comparison with Monopoly
π i = (1 − a1 − a2 )ai D + (1 − 2ai )2ai D
s l

a pt =

1 4

πi =

2 − Ds 4 − Ds
s

(1 − a1 − a2 )2ai
s s

πi =

D (2 − D ) 4 + D (2 − D
s

(3 − 2(a1 + a2 ))ai )

π i = D (1 − 2ai )2ai
l

Will New Media Destroy the News Media?

39/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Comparison with Monopoly
π i = (1 − a1 − a2 )ai D + (1 − 2ai )2ai D
s l

a pt =
ac =

1 4
1 4

πi =

2 − Ds 4 − Ds
s

(1 − a1 − a2 )2ai
s s

πi =

D (2 − D ) 4 + D (2 − D
s

(3 − 2(a1 + a2 ))ai )

π i = D (1 − 2ai )2ai
l

Will New Media Destroy the News Media?

39/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Comparison with Monopoly
π i = (1 − a1 − a2 )ai D + (1 − 2ai )2ai D
s l

a pt =
ac = ac =

1 4
1 4 3 8

πi =

2 − Ds 4 − Ds
s

(1 − a1 − a2 )2ai
s s

πi =

D (2 − D ) 4 + D (2 − D
s

(3 − 2(a1 + a2 ))ai )

π i = D (1 − 2ai )2ai
l

Will New Media Destroy the News Media?

39/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Comparison with Monopoly
π i = (1 − a1 − a2 )ai D + (1 − 2ai )2ai D
s l

a pt =
ac = ac = am =

1 4
1 4 3 8 1 4

πi =

2 − Ds 4 − Ds
s

(1 − a1 − a2 )2ai
s s

πi =

D (2 − D ) 4 + D (2 − D
s

(3 − 2(a1 + a2 ))ai )

π i = D (1 − 2ai )2ai
l

Will New Media Destroy the News Media?

39/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Comparison with Monopoly
π i = (1 − a1 − a2 )ai D + (1 − 2ai )2ai D
s l

a pt =
ac = ac = am =

1 4
1 4 3 8 1 4

πi =

2 − Ds 4 − Ds
s

(1 − a1 − a2 )2ai
s s

πi =

D (2 − D ) 4 + D (2 − D
s

(3 − 2(a1 + a2 ))ai )

π i = D (1 − 2ai )2ai
l

Perfect tracking restores full efficiency
Will New Media Destroy the News Media? 39/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Impact of Switchers

Profits

D
Will New Media Destroy the News Media?

s
40/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Impact of Switchers
With ‘no tracking’ and perfect tracking there is no impact of switchers

Profits

D
Will New Media Destroy the News Media?

s
40/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Outlet Asymmetries

Will New Media Destroy the News Media?

41/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Outlet Asymmetries
One outlet has higher quality and readership share

Will New Media Destroy the News Media?

41/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Outlet Asymmetries
One outlet has higher quality and readership share Imperfect tracking: advertisers sort onto that outlet first. Commands a premium (explains the iTV premium)

Will New Media Destroy the News Media?

41/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Outlet Asymmetries
One outlet has higher quality and readership share Imperfect tracking: advertisers sort onto that outlet first. Commands a premium (explains the iTV premium) Perfect tracking and no switching: does not impact on relative prices

Will New Media Destroy the News Media?

41/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Outlet Asymmetries
One outlet has higher quality and readership share Imperfect tracking: advertisers sort onto that outlet first. Commands a premium (explains the iTV premium) Perfect tracking and no switching: does not impact on relative prices Suggests that competition for readers may be more intense under imperfect than under perfect tracking (trade off with reduction in advertising revenue)

Will New Media Destroy the News Media?

41/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Outlet Asymmetries
One outlet has higher quality and readership share Imperfect tracking: advertisers sort onto that outlet first. Commands a premium (explains the iTV premium) Perfect tracking and no switching: does not impact on relative prices Suggests that competition for readers may be more intense under imperfect than under perfect tracking (trade off with reduction in advertising revenue) One outlet has more effective advertising (targeting)

Will New Media Destroy the News Media?

41/48

Introduction Baseline Model Extensions Conclusion

Elements Perfect Tracking Imperfect Tracking

Outlet Asymmetries
One outlet has higher quality and readership share Imperfect tracking: advertisers sort onto that outlet first. Commands a premium (explains the iTV premium) Perfect tracking and no switching: does not impact on relative prices Suggests that competition for readers may be more intense under imperfect than under perfect tracking (trade off with reduction in advertising revenue) One outlet has more effective advertising (targeting) High value advertisers sort onto that outlet first. Other outlet will expand capacity and frequency to replicate (Athey-Gans, 2010)

Will New Media Destroy the News Media?

41/48

Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Generalisations

Will New Media Destroy the News Media?

42/48

Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Generalisations
Easy generalisations:

Will New Media Destroy the News Media?

42/48

Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Generalisations
Easy generalisations: Many outlets: more switching caused by competition

Will New Media Destroy the News Media?

42/48

Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Generalisations
Easy generalisations: Many outlets: more switching caused by competition Heterogenous outlets: vertical quality causes additional sorting

Will New Media Destroy the News Media?

42/48

Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Generalisations
Easy generalisations: Many outlets: more switching caused by competition Heterogenous outlets: vertical quality causes additional sorting Capacity constrained advertisers: competition without switching

Will New Media Destroy the News Media?

42/48

Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Generalisations
Easy generalisations: Many outlets: more switching caused by competition Heterogenous outlets: vertical quality causes additional sorting Capacity constrained advertisers: competition without switching Difficult generalisations:

Will New Media Destroy the News Media?

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Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Generalisations
Easy generalisations: Many outlets: more switching caused by competition Heterogenous outlets: vertical quality causes additional sorting Capacity constrained advertisers: competition without switching Difficult generalisations: Many attention periods: then get n-homers

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Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Generalisations
Easy generalisations: Many outlets: more switching caused by competition Heterogenous outlets: vertical quality causes additional sorting Capacity constrained advertisers: competition without switching Difficult generalisations: Many attention periods: then get n-homers Repeat ads on an outlet: helps high value advertisers increase impressions but there is diminishing marginal returns.

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Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Blogs and Non-Ad Attention
Suppose that consumers can devote attention to blogs or public broadcasters (with probability xb)

Price

1-2a a
Will New Media Destroy the News Media?

Quantity (Impressions)
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Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Blogs and Non-Ad Attention
Suppose that consumers can devote attention to blogs or public broadcasters (with probability xb)

Price

1-2a
a (1 − xb (1 − ρ(1 − ρ )(1 − xb ))

Quantity (Impressions)
43/48

Will New Media Destroy the News Media?

Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Blogs and Non-Ad Attention
Suppose that consumers can devote attention to blogs or public broadcasters (with probability xb)

Price

1-2a
a (1 − xb (1 − ρ(1 − ρ )(1 − xb ))

Quantity (Impressions)
43/48

Will New Media Destroy the News Media?

Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Blogs and Non-Ad Attention
Suppose that consumers can devote attention to blogs or public broadcasters (with probability xb)

Price

vb 1-2a
a (1 − xb (1 − ρ(1 − ρ )(1 − xb ))

Quantity (Impressions)
43/48

Will New Media Destroy the News Media?

Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Blogs and Non-Ad Attention
Suppose that consumers can devote attention to blogs or public broadcasters (with probability xb)

Price

Blogs cause impression prices to rise

vb 1-2a
a (1 − xb (1 − ρ(1 − ρ )(1 − xb ))

Quantity (Impressions)
43/48

Will New Media Destroy the News Media?

Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Blogs and Non-Ad Attention
Suppose that consumers can devote attention to blogs or public broadcasters (with probability xb)

Price

Blogs cause impression prices to rise ... but compete attention from outlets.

vb 1-2a
a (1 − xb (1 − ρ(1 − ρ )(1 − xb ))

Quantity (Impressions)
43/48

Will New Media Destroy the News Media?

Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Blogs and Non-Ad Attention
Suppose that consumers can devote attention to blogs or public broadcasters (with probability xb)

Price

Blogs cause impression prices to rise ... but compete attention from outlets. May increase profits if xb low.

vb 1-2a
a (1 − xb (1 − ρ(1 − ρ )(1 − xb ))

Quantity (Impressions)
43/48

Will New Media Destroy the News Media?

Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Aggregators

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Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Aggregators
“There are those who think they have a right to take our news content and use it for their own purpose without contributing a penny to its production. Content creators bear all the costs, while aggregators enjoy many of the benefits. In the long term, this is untenable.” (Rupert Murdoch)

Will New Media Destroy the News Media?

44/48

Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Aggregators
“There are those who think they have a right to take our news content and use it for their own purpose without contributing a penny to its production. Content creators bear all the costs, while aggregators enjoy many of the benefits. In the long term, this is untenable.” (Rupert Murdoch)

What is the impact of aggregators?

Will New Media Destroy the News Media?

44/48

Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Aggregators
“There are those who think they have a right to take our news content and use it for their own purpose without contributing a penny to its production. Content creators bear all the costs, while aggregators enjoy many of the benefits. In the long term, this is untenable.” (Rupert Murdoch)

What is the impact of aggregators? May take some share of capacity (creating switchers)

Will New Media Destroy the News Media?

44/48

Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Aggregators
“There are those who think they have a right to take our news content and use it for their own purpose without contributing a penny to its production. Content creators bear all the costs, while aggregators enjoy many of the benefits. In the long term, this is untenable.” (Rupert Murdoch)

What is the impact of aggregators? May take some share of capacity (creating switchers) Switchers may be of ‘lower quality’ than loyals:

Will New Media Destroy the News Media?

44/48

Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Aggregators
“There are those who think they have a right to take our news content and use it for their own purpose without contributing a penny to its production. Content creators bear all the costs, while aggregators enjoy many of the benefits. In the long term, this is untenable.” (Rupert Murdoch)

What is the impact of aggregators? May take some share of capacity (creating switchers) Switchers may be of ‘lower quality’ than loyals: (i) less likely to yield conversions (equivalent to a reduction in value of hitting or missing switching)

Will New Media Destroy the News Media?

44/48

Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Aggregators
“There are those who think they have a right to take our news content and use it for their own purpose without contributing a penny to its production. Content creators bear all the costs, while aggregators enjoy many of the benefits. In the long term, this is untenable.” (Rupert Murdoch)

What is the impact of aggregators? May take some share of capacity (creating switchers) Switchers may be of ‘lower quality’ than loyals: (i) less likely to yield conversions (equivalent to a reduction in value of hitting or missing switching) (ii) require more impressions to generate a conversion (increase demand from high value advertisers)

Will New Media Destroy the News Media?

44/48

Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Aggregators
“There are those who think they have a right to take our news content and use it for their own purpose without contributing a penny to its production. Content creators bear all the costs, while aggregators enjoy many of the benefits. In the long term, this is untenable.” (Rupert Murdoch)

What is the impact of aggregators? May take some share of capacity (creating switchers) Switchers may be of ‘lower quality’ than loyals: (i) less likely to yield conversions (equivalent to a reduction in value of hitting or missing switching) (ii) require more impressions to generate a conversion (increase demand from high value advertisers) Individual impact depends on asymmetric readership and value of information gathered.
Will New Media Destroy the News Media? 44/48

Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Role for a Paywall?

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Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Role for a Paywall?
“No [it’s not a two way street with Google sending traffic] What’s the point of someone coming occasionally who likes a headline they see on Google? Sure we go out and say we have so many millions of visitors. The fact is that there is not enough advertising in the world to go around to make all the websites profitable. We’d rather have fewer people coming to our websites but paying. They don’t suddenly become loyal readers of our websites.” (Rupert Murdoch)

Will New Media Destroy the News Media?

45/48

Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Role for a Paywall?
“No [it’s not a two way street with Google sending traffic] What’s the point of someone coming occasionally who likes a headline they see on Google? Sure we go out and say we have so many millions of visitors. The fact is that there is not enough advertising in the world to go around to make all the websites profitable. We’d rather have fewer people coming to our websites but paying. They don’t suddenly become loyal readers of our websites.” (Rupert Murdoch)

Paywall involves expending cost to move share from switchers to loyal readers

Will New Media Destroy the News Media?

45/48

Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Role for a Paywall?
“No [it’s not a two way street with Google sending traffic] What’s the point of someone coming occasionally who likes a headline they see on Google? Sure we go out and say we have so many millions of visitors. The fact is that there is not enough advertising in the world to go around to make all the websites profitable. We’d rather have fewer people coming to our websites but paying. They don’t suddenly become loyal readers of our websites.” (Rupert Murdoch)

Paywall involves expending cost to move share from switchers to loyal readers Unilateral action will do this for both outlets

Will New Media Destroy the News Media?

45/48

Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Role for a Paywall?
“No [it’s not a two way street with Google sending traffic] What’s the point of someone coming occasionally who likes a headline they see on Google? Sure we go out and say we have so many millions of visitors. The fact is that there is not enough advertising in the world to go around to make all the websites profitable. We’d rather have fewer people coming to our websites but paying. They don’t suddenly become loyal readers of our websites.” (Rupert Murdoch)

Paywall involves expending cost to move share from switchers to loyal readers Unilateral action will do this for both outlets Trade-off loss in overall readership with increase in ‘quality’ of readers

Will New Media Destroy the News Media?

45/48

Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Role for a Paywall?
“No [it’s not a two way street with Google sending traffic] What’s the point of someone coming occasionally who likes a headline they see on Google? Sure we go out and say we have so many millions of visitors. The fact is that there is not enough advertising in the world to go around to make all the websites profitable. We’d rather have fewer people coming to our websites but paying. They don’t suddenly become loyal readers of our websites.” (Rupert Murdoch)

Paywall involves expending cost to move share from switchers to loyal readers Unilateral action will do this for both outlets Trade-off loss in overall readership with increase in ‘quality’ of readers Increase efficiency of ad-market and limit competition

Will New Media Destroy the News Media?

45/48

Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Role for a Paywall?
“No [it’s not a two way street with Google sending traffic] What’s the point of someone coming occasionally who likes a headline they see on Google? Sure we go out and say we have so many millions of visitors. The fact is that there is not enough advertising in the world to go around to make all the websites profitable. We’d rather have fewer people coming to our websites but paying. They don’t suddenly become loyal readers of our websites.” (Rupert Murdoch)

Paywall involves expending cost to move share from switchers to loyal readers Unilateral action will do this for both outlets Trade-off loss in overall readership with increase in ‘quality’ of readers Increase efficiency of ad-market and limit competition Blocking search engines may be considered a similar move
Will New Media Destroy the News Media? 45/48

Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Informational Requirements

Will New Media Destroy the News Media?

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Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Informational Requirements

Baseline model: outlets can identify if a consumer has seen an ad already on their site

Will New Media Destroy the News Media?

46/48

Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Informational Requirements

Baseline model: outlets can identify if a consumer has seen an ad already on their site Cannot tell if consumer has seen an ad on another site

Will New Media Destroy the News Media?

46/48

Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Informational Requirements

Baseline model: outlets can identify if a consumer has seen an ad already on their site Cannot tell if consumer has seen an ad on another site Can outlets use fact that consumer has visited other sites to price discriminate?

Will New Media Destroy the News Media?

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Introduction Baseline Model Extensions Conclusion

Generalisations Impact of Blogging Aggregators Paywalls

Informational Requirements

Baseline model: outlets can identify if a consumer has seen an ad already on their site Cannot tell if consumer has seen an ad on another site Can outlets use fact that consumer has visited other sites to price discriminate? If not, perfect tracking generates Cournot outcomes but without inefficiency in the baseline model

Will New Media Destroy the News Media?

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Introduction Baseline Model Extensions Conclusion

Future Directions
• Model with mixture of single and multi-homing consumers • Wasted impressions • Frequency capping technologies • Examine content provision • Competition for consumers • Bundling • Average versus marginal content quality • Local outlets (extend Athey-Gans, AER, 2010)

Will New Media Destroy the News Media?

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Introduction Baseline Model Extensions Conclusion

Will the Internet Kill the News Media?

Will New Media Destroy the News Media?

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