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Managing Television Commercial Inventory under Competition: An Equilibrium Analysis
Author(s) -
Geng Qin,
Mallik Suman
Publication year - 2019
Publication title -
decision sciences
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.238
H-Index - 108
eISSN - 1540-5915
pISSN - 0011-7315
DOI - 10.1111/deci.12317
Subject(s) - competition (biology) , revenue , nash equilibrium , outcome (game theory) , business , microeconomics , work (physics) , inventory theory , ex ante , economics , operations research , computer science , industrial organization , inventory control , marketing , mathematics , finance , mechanical engineering , ecology , engineering , biology , macroeconomics
ABSTRACT We develop a game theoretic model for managing prime time on‐air ad inventory in the television industry. The ad inventory in this industry is priced based on rating points or the number of viewers that watch a commercial. The rating points are sold through two distinct processes: the upfront , which occurs before the broadcast season, and the scatter , which occurs throughout during the broadcast season. Television networks need to allocate their total rating points inventory to these two markets before knowing either the performance rating of their shows or the scatter market price, both of which are ex ante uncertain. The television networks offer performance guarantees on the inventory that is sold in the upfront market while such guarantees are not offered in the scatter market. We consider the inventory competition between two television networks under such a setting. To the best of our knowledge, ours is the first article to consider competition in media revenue management. We establish the existence of unique Nash equilibrium under quantity competition and describe the sensitivity of the equilibrium outcome with respect to various problem parameters. We show that choosing quantity over price during the upfront is a dominant strategy for a television network. We compare our competitive model with a centralized system and discuss the managerial implications for our work.