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Two-Sided Network Effects and Competition : An Application to Media Industries

Author

Listed:
  • Jorge A, Ferrando

    (Crest)

  • Jean J, Gabszewicz

    (Crest)

  • Didier Laussel

    (Crest)

  • Nathalie Sonnac

    (Crest)

Abstract
Intermarket network externalities take place when the utility of a good produced in a givenindustry varies with the size of the demand for a good produced in another. A particularlysignificant example of this phenomenon is provided by the interaction between the media andadvertising industries. Media consumers vary according to their willingness to pay for themedia good, which depends on the advertising volume. Advertisers vary according to theirwillingness to pay for an ad, which also depends on the audience reached. We model asituation of competition between two content providers who are rivals in both the media andadvertising industries, choosing simultaneously the newspapers prices and the advertisingrates. We characterise the equilibria of the game and explore how they depend on audienceattitudes towards advertising. Our main finding is that two-sided interactions may induce exitby one of the media companies from either only the advertising market or both markets.

Suggested Citation

  • Jorge A, Ferrando & Jean J, Gabszewicz & Didier Laussel & Nathalie Sonnac, 2004. "Two-Sided Network Effects and Competition : An Application to Media Industries," Working Papers 2004-09, Center for Research in Economics and Statistics.
    • Handle: RePEc:crs:wpaper:2004-09
    as

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    References listed on IDEAS

    as
    1. Thompson, R S, 1984. "Structure and Conduct in Local Advertising Markets: The Case of Irish Provincial Newspapers," Journal of Industrial Economics, Wiley Blackwell, vol. 33(2), pages 241-249, December.
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    3. Jean-Charles Rochet & Jean Tirole, 2003. "Platform Competition in Two-Sided Markets," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 990-1029, June.
    4. Nathalie Sonnac, 2000. "Readers' Attitudes Toward Press Advertising: Are They Ad-Lovers or Ad-Averse?," Journal of Media Economics, Taylor & Francis Journals, vol. 13(4), pages 249-259.
    5. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
    6. Brown, Tom J & Rothschild, Michael L, 1993. "Reassessing the Impact of Television Advertising Clutter," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 20(1), pages 138-146, June.
    7. Thompson, R Stephen, 1989. "Circulation versus Advertiser Appeal in the Newspaper Industry: An Empirical Investigation," Journal of Industrial Economics, Wiley Blackwell, vol. 37(3), pages 259-271, March.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Anderson, Simon P. & Gabszewicz, Jean J., 2006. "The Media and Advertising: A Tale of Two-Sided Markets," Handbook of the Economics of Art and Culture, in: V.A. Ginsburgh & D. Throsby (ed.), Handbook of the Economics of Art and Culture, edition 1, volume 1, chapter 18, pages 567-614, Elsevier.
    2. Matthew Ellman & Fabrizio Germano, "undated". "What Do the Papers Sell?," Working Papers 149, Barcelona School of Economics.
    3. Dirk Bergemann & Alessandro Bonatti, 2010. "Targeting in Advertising Markets: Implications for Offline vs. Online Media," Cowles Foundation Discussion Papers 1758, Cowles Foundation for Research in Economics, Yale University.
    4. Jean‐Charles Rochet & Jean Tirole, 2006. "Two‐sided markets: a progress report," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 645-667, September.
    5. Kaiser, Ulrich & Wright, Julian, 2006. "Price structure in two-sided markets: Evidence from the magazine industry," International Journal of Industrial Organization, Elsevier, vol. 24(1), pages 1-28, January.
    6. Reisinger, Markus, 2004. "Two-Sided Markets with Negative Externalities," Discussion Papers in Economics 478, University of Munich, Department of Economics.
    7. Tosza, Katarzyna, 2009. "Payment Card Systems as an Example of two-sided Markets - a Challenge for Antitrust Authorities," MPRA Paper 23822, University Library of Munich, Germany.
    8. Claude Crampes & Carole Haritchabalet & Bruno Jullien, 2009. "Advertising, Competition And Entry In Media Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 57(1), pages 7-31, March.
    9. Paul Belleflamme & Eric Toulemonde, 2009. "Negative Intra-Group Externalities In Two-Sided Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(1), pages 245-272, February.
    10. Bruno Jullien, 2011. "Competition in Multi-sided Markets: Divide and Conquer," American Economic Journal: Microeconomics, American Economic Association, vol. 3(4), pages 186-220, November.
    11. Bruno Jullien, 2005. "Two-sided Markets and Electronic Intermediaries," CESifo Economic Studies, CESifo Group, vol. 51(2-3), pages 233-260.
    12. Cortade, Thomas, 2006. "A Strategic Guide on Two-Sided Markets Applied to the ISP Market," MPRA Paper 2602, University Library of Munich, Germany.
    13. Kremhelmer, Susanne & Zenger, Hans, 2008. "Advertising and the screening role of mass media," Information Economics and Policy, Elsevier, vol. 20(2), pages 107-119, June.

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