Working Paper: NBER ID: w30278
Authors: Matthew Gentzkow; Jesse M. Shapiro; Frank Yang; Ali Yurukoglu
Abstract: Existing theories of media competition imply that advertisers will pay a lower price in equilibrium to reach consumers who multi-home across competing outlets. We generalize, extend, and test this prediction. We find that television outlets whose viewers watch more television charge a lower price per impression to advertisers. This finding helps rationalize well-known stylized facts such as a premium for younger and more male audiences on television. A quantitative version of our model whose only free parameter is a scale normalization can explain 35 percent of the variation in price per impression across owners of television networks, and aligns with recent trends in television advertising revenue. We use the model to quantify the impact of mergers and the effect of Netflix ad carriage on prices for linear television advertising. We then extend our analysis to social media markets where we find evidence of a premium for older audiences (who multi-home less), and we discuss implications for competition across ad formats.
Keywords: advertising; pricing; multihoming; demographics
JEL Codes: L10; L82; M37
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased audience activity (multihoming) (D16) | reduced pricing power for advertisers (D49) |
| younger and more male audiences tend to watch less television (L82) | paradoxical premium for these demographics (G52) |
| audience overlap (Y60) | variable outcomes on advertising revenues (M37) |
| older audiences (J14) | higher prices in social media advertising (P22) |
| audience characteristics (L82) | pricing (D49) |