TV Advertising, Program Quality, and Product-Market Oligopoly

We present a model of the TV-advertising market that encompasses both the product markets and the market for TV programs. We argue that the TV industry has several idiosyncratic characteristics that need to be modeled, and show that the strategic interaction in this industry differs from other industries in many respects. We find that a move from a TV monopoly to a TV duopoly may reduce both the total number of viewers and the total amount of TV advertising. A softening of price competition in each product market results in more investment in program quality, higher price per advertising slot, and more advertising. A reduction of the number of firms in each product market may have the opposite effect if the price competition in the product market is sufficiently soft initially. Finally, we find that even small asymmetries between product markets can cause large asymmetries with respect to which producers buy advertising on TV.

Måling og prioriteringer i konkurransepolitikken

Samfunnet er selvsagt opptatt av at konkurransemyndighetene foretar de riktige valgene, og derigjennom bidrar til en effektiv bruk av samfunnets ressurser. Sett i et slikt perspektiv er det fornuftig at en måler effekten av konkurransemyndighetenes innsats, for derved å avdekke både om de gjør riktige beslutninger og om de foretar de riktige prioriteringene. En rekke land har i løpet av de siste årene iverksatt målinger av effekter av konkurranse-myndighetenes arbeid. I England er for eksempel konkurransemyndighetene pålagt hvert år å måle effekten for forbrukerne av deres arbeid. I Norge har vi ikke hatt det samme, men de overordnede konkurransemyndighetene (Fornyings-, administrasjons- og kirkedepartementet) har stilt målsettinger for Konkurransetilsynets arbeid gjennom det årlige Tildelingsbrevet. Det har for eksempel vært stilt krav om et visst antall forbudsvedtak hvert år, det vil si enten inngrep mot konkurransebegrensende samarbeid eller misbruk av dominans. I denne artikkelen vil vi drøfte utfordringene forbundet med å måle virkningene av konkurransepolitikken, og herunder stille spørsmålet om hvordan ulike typer målinger av virkninger av ulike typer inngrep kan påvirke konkurransemyndighetenes incentiver. Vi starter ut med tilfellet med fusjoner og oppkjøp (heretter kalt kun fusjoner), og drøfter deretter andre typer konkurransesaker i lys av de virkningene vi avdekket angående fusjoner

Entry in Telecommunication: Customer Loyalty, Price Sensitivity and Access Prices

The purpose of this article is to investigate the prospects for entry into an existing network in the telecommunication industry, and how public policy may promote a more competitive outcome. We apply a model that captures the fact that the incumbent has an installed base of loyal consumers, some consumers are price sensitive, and the entrant is charged an access fee for entering the network. We distinguish between classical (de novo) entry and reciprocal entry (incumbent entering the neighbouring market), and analyse how such public policy measures as (i) publication of prices by the authorities and (ii) lower access fees affect the competitive outcome. In the reciprocal entry model we find that lower access fees tend to discourage entry into a neighbouring market, while the publishing of prices has an ambiguous effect on entry.collusion; entry; access fee; telecommunication

Business Models for Media Firms: Does Competition Matter for how they Raise Revenue?

The purpose of this article is to analyze how competitive forces may influence the way media firms like TV channels raise revenue. A media firm can either be financed by advertising revenue, by direct payment from the viewers (or the readers, if we consider newspapers), or by both. We show that the scope for raising revenues from consumer payment is constrained by other media firms offering close substitutes. This implies that the less differentiated the media firms’ content, the larger is the fraction of their revenue coming from advertising. A media firm’s scope for raising revenues from ads, on the other hand, is constrained by how many competitors it faces. We should thus expect that direct payment from the media consumers becomes more important the larger the number of competing media products.

Competition for Viewers and Advertisers in a TV Oligopoly

We consider a model of a TV oligopoly where TV channels transmit advertising and viewers dislike such commercials. We show that advertisers make a lower profit the larger the number of TV channels. If TV channels are sufficiently close substitutes, there will be underprovision of advertising relative to social optimum. We also find that the more viewers dislike ads, the more likely it is that welfare is increasing in the number of advertising financed TV channels. A publicly owned TV channel can partly correct market distortions, in some cases by having a larger amount of advertising than private TV channels. It may even have advertising in cases where advertising is wasteful per se.television industry, advertising

Electricity production in a hydro system with a reservoir constraint

The purpose of this article is to analyze how market power may affect the allocation of production between seasons (summer and winter) in a hydro power system with reservoir constraints and inflow uncertainty. We find that even without market power the price in the summer season may be lower than the expected price in the winter season. Market power may in some situations lead to higher sales and lower price in summer than the competitive outcome and in other situations to the opposite result. Furthermore, market power may lead to a smaller price difference between summer and winter than in a competitive marke

National versus international mergers in unionised oligopoly

We analyse how the presence of trade unions affects the pattern of mergers in an international oligopoly and the welfare implications thereof. We find that an international merger results in lower wages for all firms. A national merger results in higher wages, highest for the non-merging firms. Using a model of endogenous merger formation, we find that the equilibrium market structure, if it exists, always implies one or more international mergers. Unless products are close substitutes there are more mergers than socially preferred.Endogenous merger; Merger policy; Welfare; Trade unions

Unionized Oligopoly, Trade Liberalization and Location Choice

In a two-country reciprocal dumping model, with one country unionized, we analyze how wage setting and firm location are influenced by trade liberalization. We show that trade liberalization can induce FDI, which is at odds with conventional theoretical wisdom and cannot happen in a corresponding model without unionization. FDI is undertaken partly to win a distributional battle with unionized labor, and the incentives to invest abroad can be too large seen from a welfare point of view.unionized oligopoly, economic integration, foreign direct investment

Price Coordination in Two-Sided Markets: Competition in the TV Industry

The TV industry is a two-sided market where both advertisers and viewers buy access to the programs offered by competing TV channels. Under the current market structure advertising prices are typically set by TV channels while viewer prices are set by distributors (e.g. cable operators). The latter implies that the distributors partly internalize the competition between the TV channels, since they take into account the fact that a lower viewer price at one channel will harm rival channels. We nonetheless find that a shift to a market structure where both advertising prices and viewer prices are set competitively by the TV channels might increase joint industry profits. The reason is that this market structure, in contrast to the one we observe today, directly addresses the two-sidedness of the market. We also show that this is to the benefit for the viewers.price coordination, two-sided markets, media economics

Financing of Media Firms: Does Competition Matter?

This paper analyses how competition between media firms influences the way they are financed. In a setting where monopoly media firms choose to be completely financed by consumer payments, competition may lead the media firms to be financed by advertising as well. The closer substitutes the media firms’ products are, the less they rely on consumer payment and the more they rely on advertising revenues. If media firms can invest in programming, they invest more the less differentiated the media products are perceived to be.media; advertising; two-sided markets