Media Economics: theory directions Simon P. Anderson University of Virginia Round Table Discussion

Scope Modeling 2 sided media markets interactions (other issues: bias, …) Multi-homing Strategic variables Targeting Need to fill out “the matrix” [comments welcome on posted paper with Foros, Kind, Peitz]

Importance Model predictions, hence policy prescriptions, are sensitive to assumptions Merger analysis in 2SM Laxer allowance (Bush) on media ownership caps

Start - point AC (RES, 2005): monopoly bottle-neck through single-homing viewers assumption Entry: ad levels fall, prices per viewer rise Mergers: opposite Public broadcaster (objectives??)

Fox News Entry

Equilibrium concept Ads; price/ad/viewer; price per ad; more ornate tariff structure (Weyl-White) Makes a big difference How it really happens, bargaining Other market participants – Madison Avenue, local cable providers, content producers …

“multi-homing” or “single-homing” Endogenous! Advertisers – on one or several platforms? Viewers/ surfers / readers / listeners, ditto [AFK: vertical/horizontal differentiation] Difference it makes? – can depend on “strategic variable” too! Illustration: AC vs. AR;

Distilled version of Ambrus-Reisinger (Anderson Foros Kind 2011) r c common; r j exclusive viewers, Fixed number of homogenous advertisers, wtp b per (unique) viewer Then equilibrium ad pricing has multi-homing advertisers paying br j for an ad on outlet j Incremental Pricing Principle [Venn diagrams]

Entry After 3 enters, 1’s profit goes down from b(r 1 +r 13 ) to br 1 Ad price goes down r1r1 r2r2 r3r3 r 12 r 13 r 123 r 23

Merger Before merger, ad prices are br 1 and br 2 After merger, total price for putting ad on both channels is higher: b(r 1 + r c + r 2 ) r1r1 r2r2 rcrc

targeting Matters – happens! Reduces paying for wasted eyeballs Better matching may increase prices; platform may want to temper this (de Corniere, Bruestle) by imperfectly serving matches Athey, Calvano, Gans on different degrees of targeting Privacy concerns

Different models for different media ACG, AFKP TV – timing Mags – can “watch” simultaneously www intermediate Subscription prices

Further dimensions to competition Not just prices of ads, ad clutter, and subscription fees Genre competition / program type Quality Variety in long run Merger incentives / multi-channel platforms Role of public broadcasters, non-profits

Conclusions Need to get it right! Model endogenous “homing” choice; integrative models of heterogeneity on both sides and homing choice (AFK) What we need from empirical studies: effects of entry, effects of mergers, on broad set of variables