Handbook of Media Economics, vol 1A

Π

m

¼ω

X

2

i¼1

D

i

ϕ

i

+ D

12

ϕ

12

"#

:

The marginal value for channel i of increasing the advertising intensity is independent of

whether it has merged with channel j; the gain from increasing the advertising intensity

by one unit is still equal to ω D

i

@ϕ

i

=@n

i

ðÞ

+ D

12

@ϕ

12

=@n

i

ðÞ½

. However, the merged

company will take into account the fact that the larger the advertising intensity of channel

i, the greater is the number of exclusive viewers at channel j, @D

j

=@n

i

> 0. The marginal

costs of increasing the advertising intensity are consequently equal to

MC

m

i

¼ωϕ

i

@D

i

=@n

i

ðÞ+ ϕ

12

@D

12

=@n

i

ðÞϕ

j

@D

j

=@n

i



hi

. Recall, though, that the total

size of the audience on either channel is independent of the advertising level on the other

channel. This means that @D

j

=@n

i

¼@D

12

=@n

i

,