Handbook of Media Economics, vol 1A

mixed financing, equilibrium profits are a hump-shaped function of the strength of

advertising demand. A weak advertising demand is bad news for platforms, but so too

is a strong one because then profits are dissipated through high investments in quality

to try and attract consumers. Another intriguing result (reminiscent of

Grossman and

Shapiro, 1984

) is that platform profits are increasing in the marginal cost of quality invest-

ment. This comes from the strategic effect of softening competition.

Anderson (2005) looks at an asymmetric model of quality investment in which

one platform has a central role (like a “hub” or a Lowest Common Denominator)

and competes in local markets with local platforms. The central platform (think Clear

Channel radio, ...