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Will the Internet Destroy the News Media?

Susan Athey, Emilio Calvano & Joshua Gans Boston College October 2010

Monday, 25 October 2010

Can Online Advertising Markets Save the News Media?
Susan Athey, Emilio Calvano & Joshua Gans Boston College October 2010

Monday, 25 October 2010

The chart of doom

2 Monday, 25 October 2010

The chart of doom

2 Monday, 25 October 2010

Theories

3 Monday, 25 October 2010

Theories

Loss in classifieds

3 Monday, 25 October 2010

Theories

Loss in classifieds Advertising space unlimited

3 Monday, 25 October 2010

Theories

... online ads sell at rates that are a fraction of those Loss in classifieds for print, for simple reasons of competition. “In a print world you had pretty much a limited amount Advertising space unlimited 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)

3 Monday, 25 October 2010

Theories

Loss in classifieds Advertising space unlimited

3 Monday, 25 October 2010

Theories

Loss in classifieds Advertising space unlimited Web display ads are not effective

3 Monday, 25 October 2010

Theories

“NewspaperLoss in classifieds than Web readers are ‘better’ visitors. Online readers are a notoriously fickle bunch, and apparently are getting more so by the Advertising space around, yet day. Web visitors barely stick unlimited they are counted in broad traffic statistics as if they were the Web display ads arewho effective his same as the reader not lingers over Sunday paper.”

(Paul Farhi, Washington Post)

3 Monday, 25 October 2010

Theories

Loss in classifieds Advertising space unlimited Web display ads are not effective

3 Monday, 25 October 2010

Theories

Loss in classifieds Advertising space unlimited Web display ads are not effective Dramatic increase in competition

3 Monday, 25 October 2010

Proposed solutions

4 Monday, 25 October 2010

Proposed solutions

Enforce copyright on aggregators

4 Monday, 25 October 2010

Proposed solutions

Enforce copyright on aggregators Allow mergers

4 Monday, 25 October 2010

Proposed solutions

Enforce copyright on aggregators Allow mergers Public subsidies (non-profits)

4 Monday, 25 October 2010

Proposed solutions

Enforce copyright on aggregators Allow mergers Public subsidies (non-profits) Cut public broadcasting

4 Monday, 25 October 2010

Only two facts

5 Monday, 25 October 2010

Only two facts

The Internet has facilitated consumer switching between outlets

5 Monday, 25 October 2010

Only two facts

The Internet has facilitated consumer switching between outlets There is imperfect tracking between outlets

5 Monday, 25 October 2010

Switching

6 Monday, 25 October 2010

Switching

Browsing

6 Monday, 25 October 2010

Switching

Browsing Free content

6 Monday, 25 October 2010

Switching

Browsing Free content Aggregators, social networks and search

6 Monday, 25 October 2010

Switching

Browsing Free content Aggregators, social networks and search

6 Monday, 25 October 2010

Single-homing consumers

7 Monday, 25 October 2010

Single-homing consumers

Traditional media economics with single-homing consumers …

7 Monday, 25 October 2010

Single-homing consumers

Traditional media economics with single-homing consumers … cannot explain total ad revenue decline.

7 Monday, 25 October 2010

Single-homing consumers

Traditional media economics with single-homing consumers … cannot explain total ad revenue decline. Each outlet sells access to consumer as a monopolist (Anderson-Coate).

7 Monday, 25 October 2010

Traditional Media Economics

8 Monday, 25 October 2010

Traditional Media Economics

Advertisers

8 Monday, 25 October 2010

Traditional Media Economics

Readers/Viewers

Advertisers

8 Monday, 25 October 2010

Traditional Media Economics

Readers/Viewers

Outlet

Advertisers

8 Monday, 25 October 2010

Traditional Media Economics

Readers/Viewers

Outlet

Advertisers

8 Monday, 25 October 2010

Traditional Media Economics

Readers/Viewers

Outlet

Advertisers

8 Monday, 25 October 2010

Traditional Media Economics

Readers/Viewers

Outlet

Advertisers

8 Monday, 25 October 2010

Traditional Media Economics

Readers/Viewers

Outlet

Advertisers

$

8 Monday, 25 October 2010

Traditional Media Economics

Readers/Viewers

Outlet

Advertisers

$

$$

8 Monday, 25 October 2010

Traditional Media Economics

Readers/Viewers

Outlet

Advertisers

$

$$

8 Monday, 25 October 2010

Traditional Media Economics

Readers/Viewers

Outlet

Advertisers

$

$$

8 Monday, 25 October 2010

Traditional Media Economics

Readers/Viewers

Outlet

Advertisers

$

$$

or

8 Monday, 25 October 2010

Traditional Media Economics

Readers/Viewers

Outlet

Advertisers

$0

$$

or

8 Monday, 25 October 2010

Traditional Media Economics

Readers/Viewers

Outlet

Advertisers

$0

$$

or

and

8 Monday, 25 October 2010

Traditional Media Economics

Readers/Viewers

Outlet

Advertisers

$0

$$

or

and

8 Monday, 25 October 2010

Traditional Media Economics

Readers/Viewers

Outlet

Advertisers

$0

$$

or

and

Anderson-Coate
8 Monday, 25 October 2010

This paper

Readers/Viewers

Outlet

Advertisers

$0

$$

or

and

9 Monday, 25 October 2010

This paper

Readers/Viewers

Outlet

Advertisers

$0

$$

and

9 Monday, 25 October 2010

This paper

Readers/Viewers

Outlet

Advertisers

$0

$$

and

and

9 Monday, 25 October 2010

This paper

Readers/Viewers

Outlet

Advertisers

$0

$$

and

and

?

9 Monday, 25 October 2010

This paper

Readers/Viewers

Outlet

Advertisers

$0

$$

and

?

and

?

9 Monday, 25 October 2010

Our assumptions

10 Monday, 25 October 2010

Our assumptions

Consumers have two attention periods …

10 Monday, 25 October 2010

Our assumptions

Consumers have two attention periods … and allocate attention to outlets based on quality …

10 Monday, 25 October 2010

Our assumptions

Consumers have two attention periods … and allocate attention to outlets based on quality … … with a probability of switching outlets between each.

10 Monday, 25 October 2010

Our assumptions

Consumers have two attention periods … and allocate attention to outlets based on quality … … with a probability of switching outlets between each. Advertisers want to impress each consumer once over the two periods …

10 Monday, 25 October 2010

Our assumptions

Consumers have two attention periods … and allocate attention to outlets based on quality … … with a probability of switching outlets between each. Advertisers want to impress each consumer once over the two periods … and have heterogeneous values (v) on impressing consumers with distribution F(v); assumed to be U[0,1].

10 Monday, 25 October 2010

Our assumptions

Consumers have two attention periods … and allocate attention to outlets based on quality … … with a probability of switching outlets between each. Advertisers want to impress each consumer once over the two periods … and have heterogeneous values (v) on impressing consumers with distribution F(v); assumed to be U[0,1]. Two outlets supply advertising space associated with each unit of consumer attention
10 Monday, 25 October 2010

Consumer Model

11 Monday, 25 October 2010

Consumer Model

If they have opportunity to choose

11 Monday, 25 October 2010

Consumer Model

If they have opportunity to choose consumers select outlet i with probability xi.

11 Monday, 25 October 2010

Consumer Model

If they have opportunity to choose consumers select outlet i with probability xi. In a given period, the probability that a consumer can choose is ρ.

11 Monday, 25 October 2010

Consumer Model

If they have opportunity to choose consumers select outlet i with probability xi. In a given period, the probability that a consumer can choose is ρ.

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

11 Monday, 25 October 2010

The impression game

Morning

Afternoon

Outlet 1

Outlet 2

12 Monday, 25 October 2010

The impression game

Morning

Afternoon

Outlet 1

Outlet 2

12 Monday, 25 October 2010

The impression game

Morning

Afternoon

Outlet 1

Outlet 2

12 Monday, 25 October 2010

The impression game

Morning

Afternoon

Outlet 1

Outlet 2

12 Monday, 25 October 2010

The impression game

Morning

Afternoon

Outlet 1

Outlet 2

12 Monday, 25 October 2010

The impression game

Morning

Afternoon

Outlet 1

Outlet 2

12 Monday, 25 October 2010

The impression game

Morning

Afternoon

Outlet 1

Outlet 2

12 Monday, 25 October 2010

The impression game

Morning

Afternoon

Outlet 1

Outlet 2

If Starbucks single-homes, it misses impressions. If Starbucks multi-homes, it wastes impressions.
12 Monday, 25 October 2010

The advertiser’s dilemma

Customer analysis of data provided to authors by CommScore of 30 recent large, cross-outlet campaigns

13 Monday, 25 October 2010

The advertiser’s dilemma

Wasted Impressions

Customer analysis of data provided to authors by CommScore of 30 recent large, cross-outlet campaigns

13 Monday, 25 October 2010

Solving the dilemma

14 Monday, 25 October 2010

Solving the dilemma

No switching

14 Monday, 25 October 2010

Solving the dilemma

No switching Pure multi-homing

14 Monday, 25 October 2010

Solving the dilemma

No switching Pure multi-homing No tracking (Bergemann-Bonatti)

14 Monday, 25 October 2010

Solving the dilemma

No switching Pure multi-homing No tracking (Bergemann-Bonatti) Coordination in time

14 Monday, 25 October 2010

Solving the dilemma

No switching Pure multi-homing No tracking (Bergemann-Bonatti) Coordination in time Perfect tracking
14 Monday, 25 October 2010

Perfect tracking

15 Monday, 25 October 2010

Perfect tracking

D1l

15 Monday, 25 October 2010

Perfect tracking

D1l

l D2

15 Monday, 25 October 2010

Perfect tracking

D1l

l D2

Ds

15 Monday, 25 October 2010

Perfect tracking

D1l
2a1

l D2

Ds

15 Monday, 25 October 2010

Perfect tracking

D1l
2a1

l D2

Ds

2a2

15 Monday, 25 October 2010

Perfect tracking

D1l
2a1

l D2

Ds
a1 + a2

2a2

15 Monday, 25 October 2010

Perfect tracking

Pooled w/o Tracking

D1l
2a1

l D2

Ds
a1 + a2

2a2

15 Monday, 25 October 2010

Perfect tracking

D 2a1

l 1

D a1 + a2

s

l D2 2a2

15 Monday, 25 October 2010

Perfect tracking

D 2a1

l 1

D a1 + a2

s

l D2 2a2

15 Monday, 25 October 2010

Perfect tracking

D 2a1

l 1

D a1 + a2

s

l D2 2a2

p1 = 1 − F(2a1 )

p12 = 1 − F(a1 + a2 )

p2 = 1 − F(2a2 )

15 Monday, 25 October 2010

Profit comparison

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

π i = D l F −1 (1 − 2ai )2ai

16 Monday, 25 October 2010

Profit comparison

π i = (D s + 2D l )F −1 (1 − 2a)a

π i = D l F −1 (1 − 2a)2a

16 Monday, 25 October 2010

Profit comparison

π i = xi F −1 (1 − 2a)2a

= π i = xi F −1 (1 − 2a)2a

16 Monday, 25 October 2010

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

17 Monday, 25 October 2010

Missed & wasted impressions

Expected Unique Impressions

18 Monday, 25 October 2010

Missed & wasted impressions

Expected Unique Impressions

Single-Home on i

18 Monday, 25 October 2010

Missed & wasted impressions

Expected Unique Impressions

Single-Home on i

θ i = Dil + 1 D s 2

18 Monday, 25 October 2010

Missed & wasted impressions

Expected Unique Impressions

Single-Home on i Multi-Home

θ i = Dil + 1 D s 2

18 Monday, 25 October 2010

Missed & wasted impressions

Expected Unique Impressions

Single-Home on i Multi-Home

θ i = Dil + 1 D s 2
l 3 θ12 = D1l + D2 + 4 D s

18 Monday, 25 October 2010

Missed & wasted impressions

Expected Unique Impressions

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

θ i = Dil + 1 D s 2
l 3 θ12 = D1l + D2 + 4 D s

18 Monday, 25 October 2010

Missed & wasted impressions

Expected Unique Impressions

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

θ i = Dil + 1 D s 2
l 3 θ12 = D1l + D2 + 4 D s

θ12 = 1 ′

18 Monday, 25 October 2010

Missed & wasted impressions

Expected Unique Impressions

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

θ i = Dil + 1 D s 2
l 3 θ12 = D1l + D2 + 4 D s

θ12 = 1 ′

θ12 ≤ θ1 + θ 2 = θ12 for ρ > 0 ′
18 Monday, 25 October 2010

Sorting outcome

If capacities not too different, there exists a single market clearing price 1

0
19 Monday, 25 October 2010

Sorting outcome

If capacities not too different, there exists a single market clearing price 1

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

0
19 Monday, 25 October 2010

Sorting outcome

If capacities not too different, there exists a single market clearing price 1

Single-homer surplus = (Dil + 1 D s )(vi − p) 2
l 3 Multi-homer surplus = (D1l + D2 + 4 D s )v − p

0
19 Monday, 25 October 2010

Sorting outcome

If capacities not too different, there exists a single market clearing price 1

Single-homer surplus = (Dil + 1 D s )(vi − p) 2
l 3 Multi-homer surplus = (D1l + D2 + 4 D s )v − p

Multi-homer surplus (2 on i)
0
3 = v − (2Dil + D lj + 2 D s )p

19 Monday, 25 October 2010

Sorting outcome

If capacities not too different, there exists a single market clearing price 1

(Dil + 1 D s )(vi − p) = 0 2
l 3 Multi-homer surplus = (D1l + D2 + 4 D s )v − p

Multi-homer surplus (2 on i)
0
3 = v − (2Dil + D lj + 2 D s )p

19 Monday, 25 October 2010

Sorting outcome

If capacities not too different, there exists a single market clearing price 1

(Dil + 1 D s )(vi − p) = 0 2
l 3 Multi-homer surplus = (D1l + D2 + 4 D s )v − p

vi
0

Multi-homer surplus (2 on i)
3 = v − (2Dil + D lj + 2 D s )p

19 Monday, 25 October 2010

Sorting outcome

If capacities not too different, there exists a single market clearing price 1

(Dil + 1 D s )(vi − p) = 0 2
l 3 Multi-homer surplus = (D1l + D2 + 4 D s )v − p

p
0

vi

Multi-homer surplus (2 on i)
3 = v − (2Dil + D lj + 2 D s )p

19 Monday, 25 October 2010

Sorting outcome

If capacities not too different, there exists a single market clearing price 1

(Dil + 1 D s )(vi − p) = 0 2
D lj (v − p) + 1 D s (v − 2 p) > 0 4

p
0

vi

Multi-homer surplus (2 on i)
3 = v − (2Dil + D lj + 2 D s )p

19 Monday, 25 October 2010

Sorting outcome

If capacities not too different, there exists a single market clearing price 1

(Dil + 1 D s )(vi − p) = 0 2

v12
p
0

D lj (v − p) + 1 D s (v − 2 p) > 0 4

vi

Multi-homer surplus (2 on i)
3 = v − (2Dil + D lj + 2 D s )p

19 Monday, 25 October 2010

Sorting outcome

If capacities not too different, there exists a single market clearing price 1

(Dil + 1 D s )(vi − p) = 0 2
D lj + 1 D s 2 D lj +1 4 D
s

p v12
p
0

D lj (v − p) + 1 D s (v − 2 p) > 0 4

vi

Multi-homer surplus (2 on i)
3 = v − (2Dil + D lj + 2 D s )p

19 Monday, 25 October 2010

Sorting outcome

If capacities not too different, there exists a single market clearing price 1

(Dil + 1 D s )(vi − p) = 0 2
D lj + 1 D s 2 D lj +1 4 D
s

p v12
p
0

D lj (v − p) + 1 D s (v − 2 p) > 0 4

vi
1 4

D s v > (Dil + 1 D s ) p 2
19

Monday, 25 October 2010

Sorting outcome

If capacities not too different, there exists a single market clearing price 1

v12 ′
D lj + 1 D s 2 D lj +1 4 D
s

(Dil + 1 D s )(vi − p) = 0 2
D lj (v − p) + 1 D s (v − 2 p) > 0 4

p v12
p
0

vi
1 4

D s v > (Dil + 1 D s ) p 2
19

Monday, 25 October 2010

Sorting outcome

If capacities not too different, there exists a single market clearing price 1
Dil + 1 D s 2
1 4

Ds

′ p v12

(Dil + 1 D s )(vi − p) = 0 2
D lj (v − p) + 1 D s (v − 2 p) > 0 4

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

p v12
p
0

vi
1 4

D s v > (Dil + 1 D s ) p 2
19

Monday, 25 October 2010

Market clearing

1
Dil + 1 D s 2
1 4

Ds

p

v12 ′ v12 vi

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

p

p
0

20 Monday, 25 October 2010

Market clearing

1
Dil + 1 D s 2
1 4

Ds

p

v12 ′ v12
(D l + 1 D s )(v12 − vi ) 2

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

p

p
0

vi

20 Monday, 25 October 2010

Market clearing

1
Dil + 1 D s 2
1 4

Ds

p

v12 ′

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

(D l + 1 D s )2(v12 − v12 ) ′ 2
p

v12
(D l + 1 D s )(v12 − vi ) 2

p
0

vi

20 Monday, 25 October 2010

Market clearing

1
Dil + 1 D s 2
1 4

Ds

p

v12 ′ v12

(D l + 1 D s )3(1 − v12 ) ′ 2 (D l + 1 D s )2(v12 − v12 ) ′ 2

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

p

(D l + 1 D s )(v12 − vi ) 2
p
0
20 Monday, 25 October 2010

vi

Market clearing

1
Dil + 1 D s 2
1 4

Ds

p

v12 ′ v12

(D l + 1 D s )3(1 − v12 ) ′ 2 (D l + 1 D s )2(v12 − v12 ) ′ 2

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

p

(D l + 1 D s )(v12 − vi ) 2
p
0
20 Monday, 25 October 2010

vi
Market Demand for Impressions

Market clearing

1
Dil + 1 D s 2
1 4

Ds

p

v12 ′ v12

(D l + 1 D s )3(1 − v12 ) ′ 2 (D l + 1 D s )2(v12 − v12 ) ′ 2

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

p

(D l + 1 D s )(v12 − vi ) 2
p
0
20 Monday, 25 October 2010

vi
Market Demand for Impressions Market Supply of Impressions

Market clearing

1
Dil + 1 D s 2
1 4

Ds

p

v12 ′ v12

(D l + 1 D s )3(1 − v12 ) ′ 2 (D l + 1 D s )2(v12 − v12 ) ′ 2
l 2a1 D1l + 2a2 D2

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

p

+(a1 + a2 )D s

(D l + 1 D s )(v12 − vi ) 2
p
0
20 Monday, 25 October 2010

vi
Market Demand for Impressions Market Supply of Impressions

Market clearing

1
Dil + 1 D s 2
1 4

Ds

p

v12 ′ v12 vi
Market Demand for Impressions Market Supply of Impressions
3 a1 + a2 = 1 (v12 − vi ) + (v12 ' − v12 ) + 2 (1 − v12 ' ) 2

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

p

p
0

20 Monday, 25 October 2010

Market clearing

1

v12 ′ v12 vi
Market Demand for Impressions 0
20 Monday, 25 October 2010

D s (2 − D s ) D p= (3+− D2(a1 + a2 )) s s 4 + D (2 − D ) D p
l i 1 2 s 1 4 s

Market Supply of Impressions

Advertiser demand

Price

Quantity (Advertisers)
21 Monday, 25 October 2010

Advertiser demand

Price Single-homing

Quantity (Advertisers)
21 Monday, 25 October 2010

Advertiser demand

To impress loyals, want to multi-home … at the cost of wasted switcher impressions

Price Single-homing

Quantity (Advertisers)
21 Monday, 25 October 2010

Advertiser demand

To impress loyals, want to multi-home … at the cost of wasted switcher impressions

Price Single-homing

Multi-homing

Quantity (Advertisers)
21 Monday, 25 October 2010

Advertiser demand

To impress loyals, want to multi-home … at the cost of wasted switcher impressions To impress switchers, want to increase frequency … at the cost of wasted loyal impressions

Price Single-homing

Multi-homing

Quantity (Advertisers)
21 Monday, 25 October 2010

Advertiser demand

To impress loyals, want to multi-home … at the cost of wasted switcher impressions To impress switchers, want to increase frequency … at the cost of wasted loyal impressions

Price Single-homing

Multi-homing Multi-homing + Frequency

Quantity (Advertisers)
21 Monday, 25 October 2010

Advertiser demand

To impress loyals, want to multi-home … at the cost of wasted switcher impressions To impress switchers, want to increase frequency … at the cost of wasted loyal impressions Higher value advertisers more willing to bear costs

Price Single-homing

Multi-homing Multi-homing + Frequency

Quantity (Advertisers)
21 Monday, 25 October 2010

Market clearing

Price Supply

2a Quantity (Advertisers)
22 Monday, 25 October 2010

Market clearing

Price Supply

2a Quantity (Advertisers)
22 Monday, 25 October 2010

Market clearing

Price Supply

2a Quantity (Advertisers)
22 Monday, 25 October 2010

Market clearing

Price

The equilibrium impression price is set by a single-homing advertiser.

Supply

2a Quantity (Advertisers)
22 Monday, 25 October 2010

Market clearing

Price

The equilibrium impression price is set by a single-homing advertiser. The price also determines the mix of advertisers in ‘homing’ strategies

Supply

2a Quantity (Advertisers)
22 Monday, 25 October 2010

More switchers

Price Supply

Quantity (Advertisers)
23 Monday, 25 October 2010

More switchers

Price

More switchers reduces demand for multihoming

Supply

Quantity (Advertisers)
23 Monday, 25 October 2010

More switchers

Price

More switchers reduces demand for multihoming

Supply

Quantity (Advertisers)
23 Monday, 25 October 2010

More switchers

Price

More switchers reduces demand for multihoming … but increases the demand for multihoming + frequency

Supply

Quantity (Advertisers)
23 Monday, 25 October 2010

More switchers

Price

More switchers reduces demand for multihoming … but increases the demand for multihoming + frequency

Supply

Quantity (Advertisers)
23 Monday, 25 October 2010

More switchers

Price

More switchers reduces demand for multihoming … but increases the demand for multihoming + frequency

Supply

Quantity (Advertisers)
23 Monday, 25 October 2010

More switchers

Price

More switchers reduces demand for multihoming … but increases the demand for multihoming + frequency … can increase profits

Supply

Quantity (Advertisers)
23 Monday, 25 October 2010

More switchers

Price

More switchers reduces demand for multihoming … but increases the demand for multihoming + frequency … can increase profits

Supply

Quantity (Advertisers)
23 Monday, 25 October 2010

Endogenous ad capacity

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

πi =
πi =

2 − Ds 4 − Ds
s

(1 − a1 − a2 )2ai
s s

D (2 − D ) 4 + D (2 − D )
s

(3 − 2(a1 + a2 ))ai

π i = D l (1 − 2ai )2ai

24 Monday, 25 October 2010

Endogenous ad capacity

π i = (1 − a1 − a2 )ai D + (1 − 2ai )2ai D
s

l

a pt =

1 4 − Ds

πi =
πi =

2 − Ds 4 − Ds
s

(1 − a1 − a2 )2ai
s s

D (2 − D ) 4 + D (2 − D )
s

(3 − 2(a1 + a2 ))ai

π i = D l (1 − 2ai )2ai

24 Monday, 25 October 2010

Endogenous ad capacity

π i = (1 − a1 − a2 )ai D + (1 − 2ai )2ai D
s

l

a pt =

1 4 − Ds

πi =
πi =

2 − Ds 4 − Ds
s

(1 − a1 − a2 )2ai
s s

ac =

1 3

D (2 − D ) 4 + D (2 − D )
s

(3 − 2(a1 + a2 ))ai

π i = D l (1 − 2ai )2ai

24 Monday, 25 October 2010

Endogenous ad capacity

π i = (1 − a1 − a2 )ai D + (1 − 2ai )2ai D
s

l

a pt =

1 4 − Ds

πi =
πi =

2 − Ds 4 − Ds
s

(1 − a1 − a2 )2ai
s s

ac = ac =

1 3 1 2

D (2 − D ) 4 + D (2 − D
s

(3 − 2(a1 + a2 ))ai )

π i = D l (1 − 2ai )2ai

24 Monday, 25 October 2010

Endogenous ad capacity

π i = (1 − a1 − a2 )ai D + (1 − 2ai )2ai D
s

l

a pt =

1 4 − Ds

πi =
πi =

2 − Ds 4 − Ds
s

(1 − a1 − a2 )2ai
s s

ac = ac = am =

1 3 1 2 1 4

D (2 − D ) 4 + D (2 − D
s

(3 − 2(a1 + a2 ))ai )

π i = D (1 − 2ai )2ai
l

24 Monday, 25 October 2010

Endogenous ad capacity

π i = (1 − a1 − a2 )ai D + (1 − 2ai )2ai D
s

l

a pt =

1 4 − Ds

πi =
πi =

2 − Ds 4 − Ds
s

(1 − a1 − a2 )2ai
s s

ac = ac = am =

1 3 1 2 1 4

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

24 Monday, 25 October 2010

Common ownership

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

πi =
πi =

2 − Ds 4 − Ds
s

(1 − a1 − a2 )2ai
s s

D (2 − D ) 4 + D (2 − D )
s

(3 − 2(a1 + a2 ))ai

π i = D l (1 − 2ai )2ai

25 Monday, 25 October 2010

Common ownership

π i = (1 − a1 − a2 )ai D + (1 − 2ai )2ai D
s

l

a pt =

1 4

πi =
πi =

2 − Ds 4 − Ds
s

(1 − a1 − a2 )2ai
s s

D (2 − D ) 4 + D (2 − D )
s

(3 − 2(a1 + a2 ))ai

π i = D l (1 − 2ai )2ai

25 Monday, 25 October 2010

Common ownership

π i = (1 − a1 − a2 )ai D + (1 − 2ai )2ai D
s

l

a pt =

1 4

πi =
πi =

2 − Ds 4 − Ds
s

(1 − a1 − a2 )2ai
s s

ac =

1 4

D (2 − D ) 4 + D (2 − D )
s

(3 − 2(a1 + a2 ))ai

π i = D l (1 − 2ai )2ai

25 Monday, 25 October 2010

Common ownership

π i = (1 − a1 − a2 )ai D + (1 − 2ai )2ai D
s

l

a pt =

1 4

πi =
πi =

2 − Ds 4 − Ds
s

(1 − a1 − a2 )2ai
s s

ac = ac =

1 4 3 8

D (2 − D ) 4 + D (2 − D
s

(3 − 2(a1 + a2 ))ai )

π i = D l (1 − 2ai )2ai

25 Monday, 25 October 2010

Common ownership

π i = (1 − a1 − a2 )ai D + (1 − 2ai )2ai D
s

l

a pt =

1 4

πi =
πi =

2 − Ds 4 − Ds
s

(1 − a1 − a2 )2ai
s s

ac = ac = am =

1 4 3 8 1 4

D (2 − D ) 4 + D (2 − D
s

(3 − 2(a1 + a2 ))ai )

π i = D (1 − 2ai )2ai
l

25 Monday, 25 October 2010

Common ownership

π i = (1 − a1 − a2 )ai D + (1 − 2ai )2ai D
s

l

a pt =

1 4

πi =
πi =

2 − Ds 4 − Ds
s

(1 − a1 − a2 )2ai
s s

ac = ac = am =

1 4 3 8 1 4

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

25 Monday, 25 October 2010

Endogenous ad capacity

Profits

Share of switchers
26 Monday, 25 October 2010

Endogenous ad capacity

Outlets compete in Cournot fashion due to presence of switchers

Profits

Share of switchers
26 Monday, 25 October 2010

Endogenous ad capacity

Outlets compete in Cournot fashion due to presence of switchers Increase in switchers causes expansion in ad capacity in equilibrium

Profits

Share of switchers
26 Monday, 25 October 2010

Endogenous ad capacity

Outlets compete in Cournot fashion due to presence of switchers Increase in switchers causes expansion in ad capacity in equilibrium ‘Potential’ U-Shaped relationship

Profits

Share of switchers
26

Monday, 25 October 2010

Perfect tracking

Profits

Share of switchers
27 Monday, 25 October 2010

Perfect tracking

Profits

Under perfect tracking …

Share of switchers
27 Monday, 25 October 2010

Perfect tracking

Profits

Under perfect tracking … inefficient matching is eliminated …

Share of switchers
27 Monday, 25 October 2010

Perfect tracking

Profits

Under perfect tracking … inefficient matching is eliminated … but switchers create competition at the margin

Share of switchers
27 Monday, 25 October 2010

Impact of blogs

Price

Supply

Quantity (Impressions)
28 Monday, 25 October 2010

Impact of blogs

Price

Supply

Blogs and other non-ad content …

Quantity (Impressions)
28 Monday, 25 October 2010

Impact of blogs

Price

Supply

Blogs and other non-ad content … decrease available ad capacity in the market …

Quantity (Impressions)
28 Monday, 25 October 2010

Impact of blogs

Price

Supply

Blogs and other non-ad content … decrease available ad capacity in the market …

Quantity (Impressions)
28 Monday, 25 October 2010

Impact of blogs

Price

Supply

Blogs and other non-ad content … decrease available ad capacity in the market … and reduce adverse effect of switching …

Quantity (Impressions)
28 Monday, 25 October 2010

Impact of blogs

Price

Supply

Blogs and other non-ad content … decrease available ad capacity in the market … and reduce adverse effect of switching …

Quantity (Impressions)
28 Monday, 25 October 2010

Impact of blogs

Price

Supply

Blogs and other non-ad content … decrease available ad capacity in the market … and reduce adverse effect of switching … Causing impression prices to rise.
Quantity (Impressions)
28 Monday, 25 October 2010

Impact of blogs

Price

Supply

Blogs and other non-ad content … decrease available ad capacity in the market … and reduce adverse effect of switching … Causing impression prices to rise.
Quantity (Impressions)
28 Monday, 25 October 2010

Paywalls

29 Monday, 25 October 2010

Paywalls

Subscription-based paywalls reduces switching (increase efficiency).

29 Monday, 25 October 2010

Paywalls

Subscription-based paywalls reduces switching (increase efficiency). Unilateral paywalls cost an outlet in readership but benefit both outlets in increased efficiency.

29 Monday, 25 October 2010

Paywalls

Subscription-based paywalls reduces switching (increase efficiency). Unilateral paywalls cost an outlet in readership but benefit both outlets in increased efficiency. Switchers magnify positive externalities so we expect lower equilibrium paywalls.

29 Monday, 25 October 2010

Conclusions

30 Monday, 25 October 2010

Conclusions

Mergers may increase outlet ad revenue.

30 Monday, 25 October 2010

Conclusions

Mergers may increase outlet ad revenue. Public broadcasting is an ‘attention’ threat but involves less competition than commercial outlets.

30 Monday, 25 October 2010

Conclusions

Mergers may increase outlet ad revenue. Public broadcasting is an ‘attention’ threat but involves less competition than commercial outlets. Paywalls may be a poor substitute to advertising.

30 Monday, 25 October 2010

Future directions

31 Monday, 25 October 2010

Future directions

Outlet asymmetries and competition for readers

31 Monday, 25 October 2010

Future directions

Outlet asymmetries and competition for readers Platform market structure issues in perfect tracking

31 Monday, 25 October 2010

Future directions

Outlet asymmetries and competition for readers Platform market structure issues in perfect tracking Interactions with ad targeting

31 Monday, 25 October 2010

Will the Internet Destroy the News Media?

32 Monday, 25 October 2010