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Will the Internet Destroy the News Media?

Susan Athey, Emilio Calvano & Joshua Gans Duke/Northwestern/Texas IO Theory Conference November 2010

Friday, 19 November 2010

Can Online Advertising Markets Save the News Media?
Susan Athey, Emilio Calvano & Joshua Gans Duke/Northwestern/Texas IO Theory Conference November 2010

Friday, 19 November 2010

The chart of doom

Newspaper  Ad  Revenue  ($m)

Source:  Newspaper  Associa1on  of  America Friday, 19 November 2010

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The chart of doom

Newspaper  Ad  Revenue  ($m)
$50,000

$37,500

$25,000

$12,500

$0 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008

Source:  Newspaper  Associa1on  of  America Friday, 19 November 2010

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The chart of doom

Newspaper  Ad  Revenue  ($m)
$50,000

$37,500

$25,000

$12,500

$0 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008

Source:  Newspaper  Associa1on  of  America Friday, 19 November 2010

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The chart of doom Newspaper  Ad  Revenue  (1980  $m)
$30,000

$22,500

$15,000

$7,500

$0 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008

Source:  Newspaper  Associa1on  of  America Friday, 19 November 2010

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Not just the economy

Newspaper  Ad  Revenue  (%  of  GDP)
0.007

0.005

0.004

0.002

0 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008

Source:  Newspaper  Associa1on  of  America Friday, 19 November 2010

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The chart of doom Newspaper  Ad  Revenue  (1980  $m)
$30,000

$22,500

$15,000

$7,500

$0 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008

Source:  Newspaper  Associa1on  of  America Friday, 19 November 2010

5

Not just circulation

Newspaper  Ad  Revenue  (1980  $m)

Daily  Circula1on  (‘000s)

Source:  Newspaper  Associa1on  of  America Friday, 19 November 2010

6

Not just circulation

Newspaper  Ad  Revenue  (1980  $m)
$30,000

Daily  Circula1on  (‘000s)
70,000

$22,500

62,500

$15,000

55,000

$7,500

47,500

$0 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008

40,000

Source:  Newspaper  Associa1on  of  America Friday, 19 November 2010

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Not just circulation

Newspaper  Ad  Revenue  (1980  $m)
$30,000

Daily  Circula1on  (‘000s)
70,000

$22,500

62,500

$15,000

55,000

$7,500

47,500

$0 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008

40,000

Source:  Newspaper  Associa1on  of  America Friday, 19 November 2010

6

Not just circulation

Newspaper  Ad  Revenue  (1980  $m)
$30,000

Daily  Circula1on  (‘000s)
70,000

$22,500

62,500

$15,000

55,000

$7,500

47,500

$0 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008

40,000

Source:  Newspaper  Associa1on  of  America Friday, 19 November 2010

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Not just circulation Newspaper  Ad  Revenue   (1980  $  per  paper  sold)
$1.40

$1.05

$0.70

$0.35

$0 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008

Source:  Newspaper  Associa1on  of  America Friday, 19 November 2010

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Not just classifieds Newspaper  Ad  Revenue   (1980  $  per  paper  sold)

Source:  Newspaper  Associa1on  of  America Friday, 19 November 2010

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Not just classifieds Newspaper  Ad  Revenue   (1980  $  per  paper  sold)
$30,000

$22,500

$15,000

$7,500

$0 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008

Source:  Newspaper  Associa1on  of  America Friday, 19 November 2010

8

Not just classifieds Newspaper  Ad  Revenue   (1980  $  per  paper  sold)
$30,000

$22,500

$15,000

$7,500

$0 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008

Source:  Newspaper  Associa1on  of  America Friday, 19 November 2010

8

Not just classifieds Newspaper  Ad  Revenue   (1980  $  per  paper  sold)
$30,000

$22,500

$15,000

$7,500

$0 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008

Source:  Newspaper  Associa1on  of  America Friday, 19 November 2010

8

Not just classifieds Newspaper  Ad  Revenue   (1980  $  per  paper  sold)
$30,000

$22,500

$15,000

$7,500

$0 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008

Source:  Newspaper  Associa1on  of  America Friday, 19 November 2010

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Theories

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Theories

Loss in classifieds

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Theories

Loss in classifieds Advertising space unlimited

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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)

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Theories

Loss in classifieds Advertising space unlimited

9 Friday, 19 November 2010

Theories

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

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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)

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Theories

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

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Theories

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

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Proposed solutions

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Proposed solutions

Enforce copyright on aggregators

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Proposed solutions

Enforce copyright on aggregators Allow mergers

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Proposed solutions

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

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Proposed solutions

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

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Only two facts

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Only two facts

The Internet has facilitated consumer switching between outlets

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Only two facts

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

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Switching

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Switching

Browsing

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Switching

Browsing Free content

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Switching

Browsing Free content Aggregators, social networks and search

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Switching

Browsing Free content Aggregators, social networks and search

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Single-homing consumers

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Single-homing consumers

Traditional media economics with single-homing consumers …

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Single-homing consumers

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

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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).

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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). This paper: allow for multi-homing consumers
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Our assumptions

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Our assumptions

Consumers have two attention periods …

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Our assumptions

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

14 Friday, 19 November 2010

Our assumptions

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

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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 …

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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].

14 Friday, 19 November 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
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Consumer Model

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Consumer Model

If they have opportunity to choose

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Consumer Model

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

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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.

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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

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The impression game

Morning

Afternoon

Outlet 1

Outlet 2

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The impression game

Morning

Afternoon

Outlet 1

Outlet 2

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The impression game

Morning

Afternoon

Outlet 1

Outlet 2

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The impression game

Morning

Afternoon

Outlet 1

Outlet 2

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The impression game

Morning

Afternoon

Outlet 1

Outlet 2

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The impression game

Morning

Afternoon

Outlet 1

Outlet 2

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The impression game

Morning

Afternoon

Outlet 1

Outlet 2

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The impression game

Morning

Afternoon

Outlet 1

Outlet 2

If Starbucks single-homes, it misses impressions. If Starbucks multi-homes, it wastes impressions.
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The advertiser’s dilemma

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

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The advertiser’s dilemma

Wasted Impressions

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

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Solving the dilemma

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Solving the dilemma

No switching

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Solving the dilemma

No switching Pure multi-homing

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Solving the dilemma

No switching Pure multi-homing No tracking

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Solving the dilemma

No switching Pure multi-homing No tracking Coordination in time

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Solving the dilemma

No switching Pure multi-homing No tracking Coordination in time Perfect tracking
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Perfect tracking

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Perfect tracking

D1l

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Perfect tracking

D1l

l D2

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Perfect tracking

D1l

l D2

Ds

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Perfect tracking

D1l
2a1

l D2

Ds

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Perfect tracking

D1l
2a1

l D2

Ds

2a2

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Perfect tracking

D1l
2a1

l D2

Ds
a1 + a2

2a2

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Perfect tracking

Pooled  w/o  Tracking

D1l
2a1

l D2

Ds
a1 + a2

2a2

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Perfect tracking

D 2a1

l 1

D a1 + a2

s

l D2 2a2

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Perfect tracking

D 2a1

l 1

D a1 + a2

s

l D2 2a2

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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 )

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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

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Profit comparison

π i = (D s + 2D l )F −1 (1 − 2a)a

π i = D l F −1 (1 − 2a)2a

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Profit comparison

π i = xi F −1 (1 − 2a)2a

= π i = xi F −1 (1 − 2a)2a

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Endogenous ad capacity

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

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Endogenous ad capacity

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

l

a pt =

1 4 − Ds

π i = D l (1 − 2ai )2ai

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Endogenous ad capacity

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

l

a pt =

1 4 − Ds

π i = D l (1 − 2ai )2ai

am =

1 4

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Endogenous ad capacity

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

l

a pt =

1 4 − Ds

π i = D l (1 − 2ai )2ai

am =

1 4

Perfect tracking restores efficiency but competition remains

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Common ownership

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

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Common ownership

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

l

a pt =

1 4

π i = D l (1 − 2ai )2ai

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Common ownership

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

l

π i = D l (1 − 2ai )2ai

a pt = am =

1 4 1 4

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Common ownership

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

l

π i = D l (1 − 2ai )2ai

a pt = am =

1 4 1 4

Perfect tracking restores full efficiency

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Intra-outlet tracking

Content-based tracking Frequency-based tracking Internal tracking
Here, we will consider the frequency-based tracking case

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Missed & wasted impressions

Expected Unique Impressions

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Missed & wasted impressions

Expected Unique Impressions

Single-Home on i

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Missed & wasted impressions

Expected Unique Impressions

Single-Home on i

θ i = Dil + 1 D s 2

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Missed & wasted impressions

Expected Unique Impressions

Single-Home on i Multi-Home

θ i = Dil + 1 D s 2

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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

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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

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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 ′

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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 ′
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Sorting outcome

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

0
25 Friday, 19 November 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
25 Friday, 19 November 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
25 Friday, 19 November 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

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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

25 Friday, 19 November 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

25 Friday, 19 November 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

25 Friday, 19 November 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

25 Friday, 19 November 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

25 Friday, 19 November 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

25 Friday, 19 November 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
25

Friday, 19 November 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
25

Friday, 19 November 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
25

Friday, 19 November 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

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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

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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

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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
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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
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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
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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
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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

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Market clearing

1

v12 ′ v12 vi
Market  Demand  for Impressions 0
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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)
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Advertiser demand

Price Single-homing

Quantity (Advertisers)
27 Friday, 19 November 2010

Advertiser demand

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

Price Single-homing

Quantity (Advertisers)
27 Friday, 19 November 2010

Advertiser demand

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

Price Single-homing

Multi-homing

Quantity (Advertisers)
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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)
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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)
27 Friday, 19 November 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)
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Market clearing

Price Supply

2a Quantity (Advertisers)
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Market clearing

Price Supply

2a Quantity (Advertisers)
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Market clearing

Price Supply

2a Quantity (Advertisers)
28 Friday, 19 November 2010

Market clearing

Price

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

Supply

2a Quantity (Advertisers)
28 Friday, 19 November 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)
28 Friday, 19 November 2010

More switchers

Price Supply

Quantity (Advertisers)
29 Friday, 19 November 2010

More switchers

Price

More switchers reduces demand for multihoming

Supply

Quantity (Advertisers)
29 Friday, 19 November 2010

More switchers

Price

More switchers reduces demand for multihoming

Supply

Quantity (Advertisers)
29 Friday, 19 November 2010

More switchers

Price

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

Supply

Quantity (Advertisers)
29 Friday, 19 November 2010

More switchers

Price

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

Supply

Quantity (Advertisers)
29 Friday, 19 November 2010

More switchers

Price

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

Supply

Quantity (Advertisers)
29 Friday, 19 November 2010

More switchers

Price

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

Supply

Quantity (Advertisers)
29 Friday, 19 November 2010

More switchers

Price

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

Supply

Quantity (Advertisers)
29 Friday, 19 November 2010

Endogenous ad capacity

30 Friday, 19 November 2010

Endogenous ad capacity

Outlets compete in Cournot fashion due to presence of switchers

30 Friday, 19 November 2010

Endogenous ad capacity

Outlets compete in Cournot fashion due to presence of switchers No pure strategy equilibrium with simultaneous moves

30 Friday, 19 November 2010

Endogenous ad capacity

Outlets compete in Cournot fashion due to presence of switchers No pure strategy equilibrium with simultaneous moves High incentives to choose asymmetric capacities (between 1/4 and 1/3)

30 Friday, 19 November 2010

Endogenous ad capacity

Outlets compete in Cournot fashion due to presence of switchers No pure strategy equilibrium with simultaneous moves High incentives to choose asymmetric capacities (between 1/4 and 1/3) Sequential move game generates asymmetric equilibrium

30 Friday, 19 November 2010

Asymmetric Quality

31 Friday, 19 November 2010

Asymmetric Quality

Suppose one outlet has higher quality and higher readership

31 Friday, 19 November 2010

Asymmetric Quality

Suppose one outlet has higher quality and higher readership Single-homing advertisers will choose to purchase an impression on high quality outlet

31 Friday, 19 November 2010

Asymmetric Quality

Suppose one outlet has higher quality and higher readership Single-homing advertisers will choose to purchase an impression on high quality outlet Sorting implies that higher quality outlet commands a premium

31 Friday, 19 November 2010

Asymmetric Quality

Suppose one outlet has higher quality and higher readership Single-homing advertisers will choose to purchase an impression on high quality outlet Sorting implies that higher quality outlet commands a premium With large numbers of switchers some multi-homing advertisers purchase additional impressions (on the smaller outlet)

31 Friday, 19 November 2010

Quality Investments

Investment
0.20

Imperfect Tracking

0.18

0.16

0.14

Perfect  Tracking
0.6 0.7 0.8 0.9 1.0

Quality  Differen1al

32 Friday, 19 November 2010

Quality Investments

Under perfect tracking capturing an additional reader increases profits in a linear fashion.
Investment
0.20

Imperfect Tracking

0.18

0.16

0.14

Perfect  Tracking
0.6 0.7 0.8 0.9 1.0

Quality  Differen1al

32 Friday, 19 November 2010

Quality Investments

Under perfect tracking capturing an additional reader increases profits in a linear fashion.
Investment
0.20

Under imperfect tracking, greater readership improves position and so has a greater increment to profit.

Imperfect Tracking

0.18

0.16

0.14

Perfect  Tracking
0.6 0.7 0.8 0.9 1.0

Quality  Differen1al

32 Friday, 19 November 2010

Quality Investments

Under perfect tracking capturing an additional reader increases profits in a linear fashion.
Investment
0.20

Under imperfect tracking, greater readership improves position and so has a greater increment to profit. Consider game where outlets invest in quality simultaneously

Imperfect Tracking

0.18

0.16

0.14

Perfect  Tracking
0.6 0.7 0.8 0.9 1.0

Quality  Differen1al

32 Friday, 19 November 2010

Impact of blogs

Price

Supply

Quantity (Impressions)
33 Friday, 19 November 2010

Impact of blogs

Price

Supply

Blogs and other non-ad content …

Quantity (Impressions)
33 Friday, 19 November 2010

Impact of blogs

Price

Supply

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

Quantity (Impressions)
33 Friday, 19 November 2010

Impact of blogs

Price

Supply

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

Quantity (Impressions)
33 Friday, 19 November 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)
33 Friday, 19 November 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)
33 Friday, 19 November 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)
33 Friday, 19 November 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)
33 Friday, 19 November 2010

Paywalls

34 Friday, 19 November 2010

Paywalls

Subscription-based paywalls reduces switching (increase efficiency).

34 Friday, 19 November 2010

Paywalls

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

34 Friday, 19 November 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.

34 Friday, 19 November 2010

Conclusions

35 Friday, 19 November 2010

Conclusions

Mergers may increase outlet ad revenue.

35 Friday, 19 November 2010

Conclusions

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

35 Friday, 19 November 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.

35 Friday, 19 November 2010

Future directions

36 Friday, 19 November 2010

Future directions

Platform market structure issues in perfect tracking

36 Friday, 19 November 2010

Future directions

Platform market structure issues in perfect tracking Interactions with ad targeting

36 Friday, 19 November 2010

Will the Internet Destroy the News Media?

37 Friday, 19 November 2010

Traditional Media Economics

38 Friday, 19 November 2010

Traditional Media Economics

Adver1sers

38 Friday, 19 November 2010

Traditional Media Economics

Readers/Viewers

Adver1sers

38 Friday, 19 November 2010

Traditional Media Economics

Readers/Viewers

Outlet

Adver1sers

38 Friday, 19 November 2010

Traditional Media Economics

Readers/Viewers

Outlet

Adver1sers

38 Friday, 19 November 2010

Traditional Media Economics

Readers/Viewers

Outlet

Adver1sers

38 Friday, 19 November 2010

Traditional Media Economics

Readers/Viewers

Outlet

Adver1sers

38 Friday, 19 November 2010

Traditional Media Economics

Readers/Viewers

Outlet

Adver1sers

$

38 Friday, 19 November 2010

Traditional Media Economics

Readers/Viewers

Outlet

Adver1sers

$

$$

38 Friday, 19 November 2010

Traditional Media Economics

Readers/Viewers

Outlet

Adver1sers

$

$$

38 Friday, 19 November 2010

Traditional Media Economics

Readers/Viewers

Outlet

Adver1sers

$

$$

38 Friday, 19 November 2010

Traditional Media Economics

Readers/Viewers

Outlet

Adver1sers

$

$$

or

38 Friday, 19 November 2010

Traditional Media Economics

Readers/Viewers

Outlet

Adver1sers

$0

$$

or

38 Friday, 19 November 2010

Traditional Media Economics

Readers/Viewers

Outlet

Adver1sers

$0

$$

or

and

38 Friday, 19 November 2010

Traditional Media Economics

Readers/Viewers

Outlet

Adver1sers

$0

$$

or

and

38 Friday, 19 November 2010

Traditional Media Economics

Readers/Viewers

Outlet

Adver1sers

$0

$$

or

and

Anderson-­‐Coate
38 Friday, 19 November 2010

This paper

Readers/Viewers

Outlet

Adver1sers

$0

$$

or

and

39 Friday, 19 November 2010

This paper

Readers/Viewers

Outlet

Adver1sers

$0

$$

and

39 Friday, 19 November 2010

This paper

Readers/Viewers

Outlet

Adver1sers

$0

$$

and

and

39 Friday, 19 November 2010

This paper

Readers/Viewers

Outlet

Adver1sers

$0

$$

and

and

?

39 Friday, 19 November 2010

This paper

Readers/Viewers

Outlet

Adver1sers

$0

$$

and

?

and

?

39 Friday, 19 November 2010