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Program Quality Competition in Broadcasting Markets
Author(s) -
LI CHANGYING,
ZHANG JIANHU
Publication year - 2016
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/jpet.12150
Subject(s) - competition (biology) , duopoly , incentive , quality (philosophy) , broadcasting (networking) , perspective (graphical) , economics , advertising , two sided market , microeconomics , welfare , business , market economy , computer science , ecology , computer network , philosophy , epistemology , artificial intelligence , network effect , biology
This paper develops a duopoly model where broadcasters first choose their program quality and then their pricing strategy. Two alternative financing schemes are considered: pay‐TV and free‐to‐air. We find that, from a welfare perspective, a pay‐TV regime always generates inadequate quality and advertising, whereas free‐to‐air might produce excessive quality and advertising. In the case of asymmetric competition, a pay‐TV broadcaster always has a stronger incentive to conduct research and development than a free‐to‐air broadcaster does. Both platforms could either over‐ or underinvest. The pay‐TV broadcaster always shows too few advertisements, but the free‐to‐air media might act in the opposite manner.