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Intermarket network externalities and competition: An application to the media industry
Author(s) -
Ferrando Jorge,
Gabszewicz Jean J.,
Laussel Didier,
Sonnac Nathalie
Publication year - 2008
Publication title -
international journal of economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 11
eISSN - 1742-7363
pISSN - 1742-7355
DOI - 10.1111/j.1742-7363.2008.00084.x
Subject(s) - newspaper , advertising , competition (biology) , externality , network effect , economics , media industry , two sided market , microeconomics , business , ecology , public relations , political science , biology
Intermarket network externalities occur when the utility of a good produced in a given industry varies with the size of the demand for a good produced in another. A particularly significant example of this phenomenon is provided by the interaction between the media and advertising industries. Media consumers vary according to their willingness to pay for a media good, which depends on the advertising volume. In the advertising market, advertisers vary according to their willingness to pay for an advertisement, which also depends positively on the audience reached. We model a situation of competition between two content providers who are rivals in both the media and advertising industries, choosing simultaneously the newspaper prices and the advertising rates. We characterize the equilibria of the game and explore how they depend on audience attitudes towards advertising. Our main finding is that two‐sided interactions may induce exit by one of the media companies from either only the advertising market or both markets.