A BEJEAP Topics article.

Abstract

We present a model of competition between two advertising-financed media firms when consumers dislike advertising. We apply the model to analyze competition between Internet portals and find that equilibrium prices of advertising are higher the less differentiated the portals are perceived to be. Moreover, we find that the portals' aggregate profit increases if they integrate vertically with advertisers. This is true even if there is perfect competition between advertisers for advertising space. But if the portals are close substitutes, then it is profitable for one of the portals not to combine with an advertiser, and we end up with an asymmetric equilibrium with only one vertical merger - despite aggregate profits being higher with two.

Submitted: July 25, 2004 · Accepted: November 29, 2004 · Published: January 5, 2005

Originally published in Topics in Economic Analysis & Policy.

Recommended Citation

Barros, Pedro P.; Kind, Hans Jarle; Nilssen, Tore; and Sørgard, Lars (2004) "Media Competition on the Internet," Topics in Economic Analysis & Policy: Vol. 4 : Iss. 1, Article 32.
Available at: http://www.bepress.com/bejeap/topics/vol4/iss1/art32