Handbook of Media Economics, vol 1A

CHAPTER 2

The Advertising-Financed Business

Model in Two-Sided Media Markets

Simon P. Anderson*, Bruno Jullien

†

*

Commonwealth Professor of Economics, University of Virginia, Charlottesville, VA, USA

†

Toulouse School of Economics, Toulouse, France

Contents

2.1. Introduction 42

2.2. Cast of Characters 43

2.2.1 Consumers 44

2.2.2 Advertisers 46

2.2.3 Media Platforms 47

2.2.4 Other Players 47

2.3. Equilibrium Analysis of Single-Homing Viewers/Readers/Listeners/Surfers 47

2.3.1 The Ad Revenue/Subscription Revenue Balance 51

2.3.2 Representative Consumer Models 55

2.3.3 Competitive Bottlenecks 56

2.3.4 See-Saw Effects in Media Markets 58

2.3.5 Heterogeneous Ad-Nuisance Costs, Price Discrimination, and TiVo 60

2.3.6 Market Failures in Advertising Finance 60

2.3.7