Will the Internet Destroy the News Media? or Can Online Advertising Markets Save the Media?

Transcription

1 Will the Internet Destroy the News Media? or Can Online Advertising Markets Save the Media? Susan Athey Emilio Calvano Joshua Gans Discussion Points Alessandro Bonatti, MIT Sloan Workshop on Media Economics and Public Policy October 15, 2010

2 Overview Very rich model, useful framework to understand:

3 Overview Very rich model, useful framework to understand: evolution of media markets;

4 Overview Very rich model, useful framework to understand: evolution of media markets; media s market share vs. advertising capacity;

5 Overview Very rich model, useful framework to understand: evolution of media markets; media s market share vs. advertising capacity; speci c online phenomena (blogs, paywalls... ).

6 Overview Very rich model, useful framework to understand: evolution of media markets; media s market share vs. advertising capacity; speci c online phenomena (blogs, paywalls... ). More speci c focus:

7 Overview Very rich model, useful framework to understand: evolution of media markets; media s market share vs. advertising capacity; speci c online phenomena (blogs, paywalls... ). More speci c focus: the role of switching consumers,

8 Overview Very rich model, useful framework to understand: evolution of media markets; media s market share vs. advertising capacity; speci c online phenomena (blogs, paywalls... ). More speci c focus: the role of switching consumers, content fragmentation / outlet specialization (more on this later),

9 Overview Very rich model, useful framework to understand: evolution of media markets; media s market share vs. advertising capacity; speci c online phenomena (blogs, paywalls... ). More speci c focus: the role of switching consumers, content fragmentation / outlet specialization (more on this later), and di erent tracking technologies.

10 The Model (as I see it) Two outlets (websites) i 2 f1, 2g.

11 The Model (as I see it) Two outlets (websites) i 2 f1, 2g. a i is the total amount of space devoted to advertising.

12 The Model (as I see it) Two outlets (websites) i 2 f1, 2g. a i is the total amount of space devoted to advertising.

13 The Model (as I see it) Two outlets (websites) i 2 f1, 2g. a i is the total amount of space devoted to advertising. Each consumer visits two websites (repetition possible).

14 The Model (as I see it) Two outlets (websites) i 2 f1, 2g. a i is the total amount of space devoted to advertising. Each consumer visits two websites (repetition possible). The consumer pays attention to a i.

15 Tracking and Switching Perfect consumer tracking: uniform price auction for 2a i (or a i + a j ) identical objects.

16 Tracking and Switching Perfect consumer tracking: uniform price auction for 2a i (or a i + a j ) identical objects. Prices p (2a i ) and p (a i + a j ) per consumer (loyal, switching).

17 Tracking and Switching Perfect consumer tracking: uniform price auction for 2a i (or a i + a j ) identical objects. Prices p (2a i ) and p (a i + a j ) per consumer (loyal, switching). Who bene ts from more switching?

18 Tracking and Switching Perfect consumer tracking: uniform price auction for 2a i (or a i + a j ) identical objects. Prices p (2a i ) and p (a i + a j ) per consumer (loyal, switching). Who bene ts from more switching? the website charging the lower p (2a i ).

19 Tracking and Switching Perfect consumer tracking: uniform price auction for 2a i (or a i + a j ) identical objects. Prices p (2a i ) and p (a i + a j ) per consumer (loyal, switching). Who bene ts from more switching? the website charging the lower p (2a i ). For endogenous (a i, a j ), market shares matter: π i = max a i [a i (D il (1 F (2a i )) + D is (1 F (a i + a j )))]

20 Tracking and Switching Perfect consumer tracking: uniform price auction for 2a i (or a i + a j ) identical objects. Prices p (2a i ) and p (a i + a j ) per consumer (loyal, switching). Who bene ts from more switching? the website charging the lower p (2a i ). For endogenous (a i, a j ), market shares matter: π i = max a i [a i (D il (1 F (2a i )) + D is (1 F (a i + a j )))] the larger the market share (D il ), the lower a i.

21 Tracking and Switching Perfect consumer tracking: uniform price auction for 2a i (or a i + a j ) identical objects. Prices p (2a i ) and p (a i + a j ) per consumer (loyal, switching). Who bene ts from more switching? the website charging the lower p (2a i ). For endogenous (a i, a j ), market shares matter: π i = max a i [a i (D il (1 F (2a i )) + D is (1 F (a i + a j )))] the larger the market share (D il ), the lower a i. does any website bene t from more switching?

22 Tracking and Switching Perfect consumer tracking: uniform price auction for 2a i (or a i + a j ) identical objects. Prices p (2a i ) and p (a i + a j ) per consumer (loyal, switching). Who bene ts from more switching? the website charging the lower p (2a i ). For endogenous (a i, a j ), market shares matter: π i = max a i [a i (D il (1 F (2a i )) + D is (1 F (a i + a j )))] the larger the market share (D il ), the lower a i. does any website bene t from more switching? Jump to Conclusions

23 Investment in Tracking Technology Imperfect tracking: matching and duplication risk.

24 Investment in Tracking Technology Imperfect tracking: matching and duplication risk. What s a good benchmark for no tracking?

25 Investment in Tracking Technology Imperfect tracking: matching and duplication risk. What s a good benchmark for no tracking? Websites sell impressions (up to a), cannot distinguish users.

26 Investment in Tracking Technology Imperfect tracking: matching and duplication risk. What s a good benchmark for no tracking? Websites sell impressions (up to a), cannot distinguish users. 2D L + D S total searches, suppose rms single home.

27 Investment in Tracking Technology Imperfect tracking: matching and duplication risk. What s a good benchmark for no tracking? Websites sell impressions (up to a), cannot distinguish users. 2D L + D S total searches, suppose rms single home. Firm v buys x (v) impressions to maximize pro ts x x x v D S + D L 2 px 2D L + D S 2D L + D S 2D L + D S p (2DL + D ) x (v, p) = S ) 2 1 v 2D L

28 Investment in Tracking Technology Imperfect tracking: matching and duplication risk. What s a good benchmark for no tracking? Websites sell impressions (up to a), cannot distinguish users. 2D L + D S total searches, suppose rms single home. Firm v buys x (v) impressions to maximize pro ts x x x v D S + D L 2 px 2D L + D S 2D L + D S 2D L + D S p (2DL + D ) x (v, p) = S ) 2 1 v 2D L The price p of an impression then satis es Z p x (v, p) df (v) = a (2D L + D S ).

29 Concluding Remarks What is the role of the distribution of advertisers F (v)?

30 Concluding Remarks What is the role of the distribution of advertisers F (v)? How does it impact the e ect of switching (ρ) on pro ts?

31 Concluding Remarks What is the role of the distribution of advertisers F (v)? How does it impact the e ect of switching (ρ) on pro ts? Many high-value advertisers (v Pareto)?

32 Concluding Remarks What is the role of the distribution of advertisers F (v)? How does it impact the e ect of switching (ρ) on pro ts? Many high-value advertisers (v Pareto)? Switching fragmented content, specialized media.

33 Concluding Remarks What is the role of the distribution of advertisers F (v)? How does it impact the e ect of switching (ρ) on pro ts? Many high-value advertisers (v Pareto)? Switching fragmented content, specialized media. Will Internet outlets drive each other out of business?

34 Concluding Remarks What is the role of the distribution of advertisers F (v)? How does it impact the e ect of switching (ρ) on pro ts? Many high-value advertisers (v Pareto)? Switching fragmented content, specialized media. Will Internet outlets drive each other out of business? What will happen to newspapers? How to distinguish media?

35 Concluding Remarks What is the role of the distribution of advertisers F (v)? How does it impact the e ect of switching (ρ) on pro ts? Many high-value advertisers (v Pareto)? Switching fragmented content, specialized media. Will Internet outlets drive each other out of business? What will happen to newspapers? How to distinguish media? Asymmetric switching patterns (ρ ij )?

36 Concluding Remarks What is the role of the distribution of advertisers F (v)? How does it impact the e ect of switching (ρ) on pro ts? Many high-value advertisers (v Pareto)? Switching fragmented content, specialized media. Will Internet outlets drive each other out of business? What will happen to newspapers? How to distinguish media? Asymmetric switching patterns (ρ ij )? Testable implications (or close enough):

37 Concluding Remarks What is the role of the distribution of advertisers F (v)? How does it impact the e ect of switching (ρ) on pro ts? Many high-value advertisers (v Pareto)? Switching fragmented content, specialized media. Will Internet outlets drive each other out of business? What will happen to newspapers? How to distinguish media? Asymmetric switching patterns (ρ ij )? Testable implications (or close enough): Market shares (x i ) and advertising space (a i ).

38 Concluding Remarks What is the role of the distribution of advertisers F (v)? How does it impact the e ect of switching (ρ) on pro ts? Many high-value advertisers (v Pareto)? Switching fragmented content, specialized media. Will Internet outlets drive each other out of business? What will happen to newspapers? How to distinguish media? Asymmetric switching patterns (ρ ij )? Testable implications (or close enough): Market shares (x i ) and advertising space (a i ). Advertising space and content fragmentation?

39 Concluding Remarks What is the role of the distribution of advertisers F (v)? How does it impact the e ect of switching (ρ) on pro ts? Many high-value advertisers (v Pareto)? Switching fragmented content, specialized media. Will Internet outlets drive each other out of business? What will happen to newspapers? How to distinguish media? Asymmetric switching patterns (ρ ij )? Testable implications (or close enough): Market shares (x i ) and advertising space (a i ). Advertising space and content fragmentation? What about consumers attention?