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The Impact of the Internet onAdvertising Markets for News
MediaSusan Athey, Emilio Calvano & Joshua Gans
November 2011
FTC Microeconomics Conference
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The chart of doom
Source: Newspaper Associationof America
Newspaper Ad Revenue
(1980 $m)
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Reactions
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Policies
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The Internet has disrupted the operation
of advertising markets
Need to understand this and focus onhow to improve their operation
Our hypothesis
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Attention is still scarce ...
and advertisers still want to access thatattention.
Economicfundamentals
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The Internet has facilitated consumer
switching between outlets
There is imperfect tracking between
outlets
Only two facts
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Browsing
Free content
Aggregators,social networks
and search
Switching
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Choice of ad supply: Anderson-Coate: competition reduces supply (increase ad prices) Ambrus-Reisinger: when middle consumers multi-home may increase supply
or
and
$
$
$0
Ourcontribution
and/or
??
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Focus on matchingrather than adquantity
Sensitive totechnology (esp:tracking)
Care regarding
allocation ofconsumer attention
Quantity (Impressions)
Price
2a
Supply
p
Market
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Puzzles
Evidence that competition reduces per reader adprices
Outlets claim mergers will improve ad revenue
For-profit outlets object to lifting of adrestrictions on public broadcasters
Larger outlets earn higher ad revenue perconsumer
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Two attention periods.
Two outlets with ad capacity per unit of attention, ai.
If they have opportunity to choose, consumers select outlet i with
probabilityxi.
In a given period, the probability that a consumer can choose is .
Advertising supply
Di
l= x
i x
i( 1 x
i)
Ds
= 2 x 1 x 2
i ' s ad in v en to ry = Di
l 2 ai+ D
sa
i
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Advertisers want to impress each consumer once over thetwo periods
and have heterogeneous values (v) on impressingconsumers with distribution F(v); assumed to be U[0,1].
Advertiser demand
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Morning
Afternoon
Outlet1
Outlet2
If Starbucks single-homes, it misses impressions.If Starbucks multi-homes, it wastes impressions.
The impression game
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The advertisers dilemma
Custom analysis of data provided to authors byComScore of 30 recent large, cross-outlet campaigns
WastedImpressions
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No switching
No tracking
Coordination in time
Pay per click
Perfect tracking
Solving the dilemma
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Expected UniqueImpressions
Single-Homeon i
Multi-Home
Multi-Home (2 oni)
Missed & wasted impressions
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To impress loyals,want to multi-home at the cost of wastedswitcher impressions
To impress switchers,want to increasefrequency at thecost of wasted loyalimpressions
Higher valueadvertisers morewilling to bear costs
Advertiserdemand
Quantity
(Advertisers)
Price
Single-homing
Multi-homing
Multi-homing+
Frequency
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No switching
Quantity(Impressions)
Price
2a
Supply
Multi-homers
(1
impression)
v= 1
v=p
p
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Moreswitchers
Quantity(Impressions)
Price
2a
Supply
Multi-homers
(1impression)
Single-
home on
1
Single-
home on
2
Ds p
v= 1
v=p
p
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High switchers
Quantity(Impressions)
Price
2a
Supply
Multi-homers
(1
impression)
Single-
home on
1
Single-
home on
2
MH 2 on
1
MH 2 on
2 Ds p
ifahigh
v= 1
v=p
p
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Incentives to adopt perfecttracking
Profits
Imperfe
ctTracking
PerfectTracking
Ds
Low ad capacity(a)
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Incentives to adopt perfecttracking
Profits
Imperfe
ctTracking
Perfect
Tracking
Ds
High ad capacity(a)
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Mergers
Allow intra-outlet
tracking
No intra-outlettracking
Merge only ifa and Ds not too
high
Neutral unless can pricediscriminatebetween single and multi-homers
Mergers may increase profits even when Ds =0
P bli b d t &
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Blogs and other non-adcontent
decrease available adcapacity in the market
and reduce adverse effectof switching
Causing impression pricesto rise.
Public broadcasters &blogs
Quantity
(Impressions)
Price
Supply
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Policies
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Conclusions