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A simple model of advertising and subscription fees
Abstract
Traditional and modern mass media – such as television, newspapers, magazines, and Internet sites – typically derive the bulk of their revenues from advertisements rather than subscriptions. We present a simple model that explains this phenomenon.
... There are many ways of converting attention to revenue; charging subscription rates and presenting adverts are typical examples. Mixed strategies, where subscription fees and advertising are combined, have also been considered [4,19,17]. But all these strategies carry a price, for while some users perceive the associated costs as an inconvenience to be tolerated in exchange for the value obtained, others see them as a nuisance that makes them leave the site. ...
... Prasad et al. suggest that websites can increase their revenues by offering a menu of contracts, where high subscription fees are associated with a small number of ads and vice versa [19]. Baye and Morgan present a model that explains why traditional and modern mass media -such as television, newspapers, magazines, and Internet sites -typically derive the bulk of their revenues from advertisements rather than subscriptions [4]. Godes et al. explore the implications of two-sided competition for the sale of content to consumers and the attraction of advertisers on the actions and source of profits of media firms [12]. ...
... We observe that there is a discontinuity at 0, since p(0) = 1. We note that the gap p(0) − lim x→0 + p(x) decreases as u 0 increases, but never becomes equal to 0. 4 We note that p(x) can be discontinuous at 0 and log-convex throughout [0, ∞). Then, according to Lemma 1, s A (x) is increasing in x. ...
While attracting attention is one of the prime goals of content providers, the conversion of that attention into revenue is by no means obvious. Given that most users expect to consume web content for free, a provider with an established audience faces a dilemma. Since the introduction of advertisements or subscription fees will be construed by users as an inconvenience which may lead them to stop using the site, what should the provider do in order to maximize revenues? We address this question through the lens of adaptation theory, which states that even though a change affects a person's utility initially, as time goes on people tend to adapt and become less aware of past changes. We establish that if the likelihood of continuing to attend to the provider after an increase in inconvenience is log-concave in the magnitude of the increase, then the provider faces a tradeoff between achieving a higher revenue per user sooner and maximizing the number of users in the long term. On the other hand, if the likelihood of continuing to attend to the provider after an increase in inconvenience is log-convex, then it is always optimal for the provider to perform the increase in one step.
... This paper shows that a dominant intermediary had rather accommodate competitors than drive them out of the market as this allows it to set higher prices for its service. Previous literature has been concerned with the role of intermediaries as a tool to foster competition between suppliers (Baye and Morgan 2000) or to spread information about products (Kotowitz and Mathewson 1979 ). The main concern is whether a monopoly intermediary's pricing strategy will result in the exclusion of some elements of each side of the market, and thus reduce information transmission. ...
... of intermediaries as a tool to foster competition between suppliers (Baye and Morgan 2000) or to spread information about products (Kotowitz and Mathewson 1979 ). The main concern is whether a monopoly intermediary's pricing strategy will result in the exclusion of some elements of each side of the market, and thus reduce information transmission. Baye and Morgan (2000) conclude that all consumers will participate while some suppliers will be excluded, while Corbett and Karmakar (1999) conclude the opposite will occur. That literature is an outgrowth of the literature on search, advertising and price competition, and this paper abstracts from such concerns. Closer to this model is a paper by Bhargava a ...
Information intermediaries deliver information about a supplier's product. They are paid by those same suppliers they certify. This introduces conflicts of interests as the intermediaries want to retain customers by delivering truthful information about suppliers, while suppliers would want the intermediary to provide them with more customers than their quality would otherwise entitle them to. The paper compares two options for information intermediaries: either propose a menu of contracts to the suppliers so that they reveal their type, or find out by themselves the type of the supplier. In the first case, a rent must be left to induce type revelation, in the other, the intermediary must incur a cost to determine the type of the supplier. The paper shows that competition leads to a more frequent use of direct revelation mechanisms at the expense of independent research by the intermediary. The paper contributes to the literature on certification intermediaries in two sided markets by introducing a choice between relying on soft information or acquiring hard information about the side of the market to be certified, and by studying the influence of competition on contract choices in such an extended setting.
... Providers may charge subscription fees, present advertisements or some mix (Baye and Morgan 2000, Prasad et al. 2003, Kumar and Sethi 2009. But all revenue strategies take a toll while some users see the nuisance as a fair exchange for the value obtained, other users see the nuisance as intolerable and leave the website, and some potential users are deterred from joining. ...
When should a necessary inconvenience be introduced gradually, and when should it be imposed all at once? The question is crucial to web content providers, who in order to generate revenue must sooner or later introduce advertisements, subscription fees, or other inconveniences. Assuming that eventually people fully adapt to changes, the answer depends only on the shape of the survivor curve S (x), which represents the fraction of a user population willing to tolerate inconveniences of size x (Aperjis and Huberman 2011). We report a new laboratory experiment that, for the first time, estimates the shape of survivor curves in several different settings. We engage laboratory subjects in a series of six desirable activities, e.g., playing a video game, viewing a chosen video clip, or earning money by answering questions. For each activity we introduce a chosen level x ∈ [xmin ; xmax] of a particular inconvenience, and each subject chooses whether to tolerate the inconvenience or to switch to a bland activity for the remaining time. Our key finding is that, in general, the survivor curve is log-convex. Theory suggests therefore that introducing inconveniences all at once will generally be more profitable for web content providers.
... However, disparate conditions exist under which they will stay apart at the separate endpoints of the linear market, or agglomerate at either one of equilibrium prices are the magnitudes of the cross-side network externalities, regardless of whether the fees are levied on a lump-sum or per-transaction basis, and also whether or not agents join one or several platforms. 5 Although there are other branches in the literature on two-sided markets, such as Baye and Morgan (2000, 2001), the focus lies mostly on how those groups of agents interact on the platforms. In our paper, since we want to study how the platforms choose their locations, the framework we consider is based on Armstrong (2006), and allows us to view the role of cross-sided network externalities over the platforms' location and price decisions. ...
As the network externality in an industrial organization has been widely discussed in recent years, many researchers in the field have noted a particular type of market, the so-called two-sided market. In a two-sided market, two or more groups of agents such as buyers and sellers interact while exerting cross-group externalities upon each other. They interact with each other via some sort of medium, called the “platform” of interaction. This paper integrates the concept of two-sided markets into the optimal location problem for two platform providers. We show that when the two groups of customers' cross-side network externalities are equal, the duopoly platforms will agglomerate at the market center with no undercutting. However, disparate conditions exist under which the duopoly platforms will stay apart at the market endpoints, or agglomerate at either endpoint, with no undercutting.
... Some authors have considered the problem of a web publisher who not only generates revenues from advertising but also from subscriptions. Baye and Morgan (2000) develop a simple economic model of online advertising and subscription fees. Prasad et al. (2003) model two offerings to viewers of a website: a lower fee with more ads and a higher fee with fewer ads. ...
Display advertising is a $25 billion business with a promising upward revenue trend. In this paper, we consider an online display advertising setting in which a web publisher posts display ads on its website and charges based on the cost-per-click (CPC) pricing scheme while promising to deliver a certain number of clicks to the ads posted. The publisher is faced with uncertain demand for advertising slots and uncertain traffic to its website as well as uncertain click behavior of visitors. We formulate the problem as a novel queueing system, where the slots correspond to service channels with the service rate of each server inversely related to the number of active servers. We obtain the closed-form solution for the steady-state probabilities of the number of ads in the publisher's system. We determine the publisher's optimal price to charge per click and show that it can increase in the number of advertising slots and the number of promised clicks. We show that the common heuristic used by many web publishers to convert between the cost-per-click and cost-per-impression pricing schemes using the so-called click-through-rate can be misleading as it may incur web publishers substantial revenue loss. We provide an alternative explanation for the phenomenon observed by several publishers that the click-through-rate tends to drop when they switch from the cost-per-click to cost-per-impression pricing scheme.
... Achieving this goal is not easy, even for providers with established audiences. Providers may charge subscription fees, present advertisements or some mix (Baye and Morgan 2000, Prasad et al. 2003, Kumar and Sethi 2009). But all revenue strategies take a toll while some users see the nuisance as a fair exchange for the value obtained, other users see the nuisance as intolerable and leave the website, and some potential users are deterred from joining. ...
When should a necessary inconvenience be introduced gradually, and when should it be imposed all at once? The question is crucial to web content providers, who in order to generate revenue must sooner or later introduce advertisements, subscription fees, or other inconveniences. In a setting where people eventually fully adapt to changes, the answer depends on the shape of the 'survivor curve' S(x), which represents the fraction of a user population willing to tolerate inconveniences of size x (Aperjis and Huberman 2011). We report a new laboratory experiment that, for the first time, estimates the shape of survivor curves in several different settings. We engage laboratory subjects in a series of six desirable activities, e.g., playing a video game, viewing a chosen video clip, or earning money by answering questions. For each activity we introduce a chosen level x ∈ [xmin,xmax] of a particular inconvenience, and each subject chooses whether to tolerate the inconvenience or to switch to a bland activity for the remaining time. Our key finding is that the survivor curve is log-concave in all six activities. Theory suggests that web content providers therefore will generally find it profitable to introduce inconveniences gradually over time, with the timing chosen to balance the number of long-term users against more rapid revenue acquisition.
... ed into two main areas: sponsored search and display advertising. This paper focuses on the latter. However, there is a large body of literature on sponsored search advertising (see, for example, Ghose and Yang (2009), Edelman et al. (2007) and references within). Several papers consider the trade-off between subscriptions and advertising revenues. Baye and Morgan (2000) develop a simple economic model of online advertising and subscription fees. Prasad et al. (2003) model two types of subscription offerings: A lower fee with more ads and a higher fee with fewer ads. Kumar and Sethi (2009) develop a dynamic model capturing subscription fee and the size of advertising space on a website. These papers do ...
Online advertising is a fast growing area in the media industry. Web publishers that generate revenues by selling advertising space on their websites face challenging operational problems. We develop a stylized model that incorporates some essential ingredients of a publisher's advertising operation. Advertisers approach a web publisher to book an advertising campaign and expect a certain number of impressions to be delivered evenly throughout the campaign duration. The publisher designs the system to maximize its profit while satisfying advertisers' requests. We suggest a capacity allocation mechanism that shares the capacity among different advertisers and matches campaigns requirements with supply of viewers. Advertisements are dis-played uniformly but campaigns can suffer delays due to demand and supply uncertainties. We obtain a (cost-per-impression) pricing policy and a display frequency through a large-capacity system analysis that are simple to implement. The mechanism leads to economies-of-scale and is proven to be, together with the fluid solution, optimal asymptotically. We obtain data from a Scandinavian web publisher and perform an extensive numerical analysis with insightful managerial conclusions. Both the asymptotic and the numerical analysis reveal the interrelation between pricing, traffic of viewers, number of impressions promised, and display frequency of ads, in the presence of uncertainty.
... Using an optimal control model, Kumar and Sethi (2008) dynamically determine the optimal subscription fee and the amount of advertising on a website. However, Baye and Morgan (2000) argue that competition mitigates the attractiveness of subscription fees. In this paper, we develop an integrative approach that simultaneously optimizes contract negotiation and advertisement delivery. ...
In this paper, we propose a dynamic optimisation model to maximise a web publisher's online display advertising revenues. Our model dynamically selects which advertising requests to accept and dynamically delivers the promised advertising impressions to viewers so as to maximise revenue, accounting for uncertainty in advertising requests and website traffic. After characterising the structural properties of our model, we propose a Certainty Equivalent Control heuristic and then show with a real case study that our optimisation-based method outperforms common practices. These results highlight the importance of accounting for the opportunity cost of capacity allocation in advertisement contract negotiation for globally maximising online publishers' revenues.
... Only recently have researchers started to study online advertising. Baye and Morgan (2000) explain why publishers tend to derive the bulk of their revenue from advertising rather than subscription fees. Dewan, Freimer and Zhang (2002) study the optimal amount of advertising an online publisher should place on its pages. ...
The Internet is a much more accountable and measurable medium than traditional media. The unique property of the Internet being a medium with bidirectional information flows has enabled performance-based pricing models that tie online advertising payments directly to campaign measurement data such as click-throughs and purchases. These pricing models have become increasingly popular in the online advertising industry. This paper provides explanations as to when and how incorporating performance-based pricing models into advertising deals can be profitable. We argue that the publisher can make non-contractible efforts that may improve the effectiveness of advertising campaigns. These efforts are costly to the publisher. Therefore, performance-based pricing models can be used to give the publisher proper incentives to make its efforts. We derive an optimal contract that maximizes the sum of the advertiser's utility and the publisher's utility, and show that key factors that influence the use of performance-based pricing models are the importance of the publisher's incremental efforts, precision of click-through measurement, and uncertainty in the product market. We also clarify issues that are being debated in the industry, such as how the importance of the advertiser's incremental efforts and existence of non-immediate purchases affect the use of performance-based pricing models.
... Many web publishers generate revenues not only from advertising but also from subscriptions. Baye and Morgan (2000) develop a simple economic model to find out the trade-off between revenue from online advertising and subscription fees. Prasad et al (2003) model two offerings to viewers of a website: a lower fee with more advertisements and a higher fee with fewer advertisements. ...
In this article, we expand the revenue management (RM) horizon to online advertising, that is internet advertising. Easy and cheap measurability of all its statistics make the internet a potential area for forecasting-based allocation. The focus of this research is on banner advertisements and we deal only with the ‘home page’. We develop a multi-period space-allocation model to make a trade-off between price-per-view (PPV) and price-per-click (PPC) pricing schemes, taking into account various characteristics of the internet like non-uniform demands by advertisers and unpredictable web-traffic. We compare our RM model with the first-come-first-serve policy and fixed capacity bucket policy (FCB) under which fixed advertising space is allocated to either of the advertising categories (PPV or PPC). A RM approach yields about 16–20 per cent more revenue when compared to the FCB and about 80 per cent over the first-come-first-serve policy.
... In the literature, in Baye and Morgan (2000), (2001) advertisers sell and consumers buy a homogenous good, its price being the only attribute of the advertisers' offers in a game-theoretic setting, where a "gatekeeper" sets up a newspaper or a website to maximize profits. They show that the gatekeeper's optimal subscription fee is low enough to induce every consumer to subscribe, but the optimal advertising price is high enough to induce only partial participation by advertisers and guarantee price dispersion, and advertised prices are lower than unadvertised prices. ...
The paper determines the effects of different influencing variables on the media companys optimal subscription and advertising prices and editorial content. The company maximizes profit consisting of subscription and advertising revenue, minus the costs of content, advertising, and circulation, by setting the subscription and advertising prices and the amount of editorial content. Subscription demand is a function of the subscription price, the medias editorial content, and advertising, and advertising demand a function of the advertising price and circulation. The condition for the circulation spiral to be finite is derived. It is shown that an increase in a variable or a parameter (e.g. circulation demand) causes the respective price to increase only if the demand for the other product (advertising) is elastic enough, the price declining if the other products demand is less elastic. Moreover, the increase leads to an increase in editorial content if advertising demand is elastic, and to a decrease in the advertising price. An increase in advertising demand leads to an increase in the advertising price if subscription demand is elastic enough, and to a decrease in the subscription price and editorial content. An increase in the marginal effect of editorial content on subscriptions leads to an increase in editorial content without affecting the prices.
... An interesting and methodically different study on interrelated markets is provided by Baye and Morgan (2000). The authors consider a media firm, i.e. a newspaper, which sets subscription and advertising fees to maximise profits, under the assumption of a continuum of risk-neutral consumers and two identical firms, which are able to transmit price information using newspaper advertising. ...
Media and especially mass media like newspapers or magazines are characterised by a number of peculiarities which are interesting from both a theoretical and empirical point of view. The interrelationship of reader and advertising markets, high sunk costs and large economies of scale are typical features. This paper reviews the existent literature on media markets and their peculiarities and lines out areas for further research.
... Baye and Morgan (2000) put forward an explanation of the ratio between advertising revenues and subscription revenues. The results, however, are difficult to interpret through standard empirical tools possessed by practitioners. 2 However, there are some media that permit to differentiate the product according to the characteristics of consumers, such as the internet service providers. ...
As the change of economical environment, customers consume sometimes merely for fun, joy and pleasure instead of problems solving or specific product function. For consumers, sports performance means more than competition, but the entertainment, excitement and wonderful memories. For most sport leagues, attracting customers to watch the live games can contribute a lot to revenues. The spectators of sport games are motivated by entertainment, thus sport leagues can focus on the experiential elements to maintain satisfied and loyal customers to increase revenues. In consequence, the purpose of this study is to explore the influence of experiential elements, such as surprise, participation and immersion on experiential satisfaction and loyalty intentions, and propose a model to depict the structural relationship among the experiential processes. This study collected 452 samples on basketball games, and the model reached an adequate fit. Managerial implications and future research directions are also provided.
... Baye and Morgan (2000) put forward an explanation of the ratio between advertising revenues and subscription revenues. The results, however, are difficult to interpret through standard empirical tools possessed by practitioners. 2 However, there are some media that permit to differentiate the product according to the characteristics of consumers, such as the internet service providers. ...
We derive the optimal ratio between advertising and sales income when a publisher maximises its profits with respect to advertising space and product price. If consumers are more adverse towards advertising than towards price, the ratio is higher. The same theoretical framework is used to examine the relationship between the structure of media revenues and product quality. The findings of the model confirm empirical observations and some stylised facts of the media industry. In addition, we discuss some possible extensions of the model in order to include the evolution of business methods in media markets, and describe the managerial implications.
... Baye and Morgan (2000) put forward an explanation of the ratio between advertising revenues and subscription revenues. The results, however, are difficult to interpret through standard empirical tools possessed by practitioners. 2 However, there are some media that permit to differentiate the product according to the characteristics of consumers, such as the internet service providers. ...
In both entry deterrence theory and practice, customer sorting in response to stockouts determines the best reply responses of incumbents threatened by entry. People Express (PE) chose the right strategy but for the wrong entry game and ended up being deterred in the Southeast region by the incumbent Piedmont Airlines (PI). Piedmont had recently developed the second earliest full-scale implementation of a real-time inventory management optimisation tool. By employing optimal capacity controls in segmented fare classes, Piedmont was able to increase the service quality to its higher-yield loyal business customers on the congested flights precipitated by the price war with PE. When prices returned to substantially higher cost-covering target price levels, Piedmont's revenue tripled while PE's revenue actually declined. Soon thereafter, it became clear that Piedmont had successfully deterred a low-cost discounter.
... Zhou (2004) uses a monopoly model to study a television network's decision on the number, length and timing of commercial breaks. By modeling the interaction between advertising and subscription fees, Baye and Morgan (2000) offer theoretical explanations as to why advertising revenue may dominate subscription fees for certain media. In this study, we follow the basic framework of Liu et al. (2004), but relax the important assumption of uniformly-distributed viewer tastes. ...
This paper studies the behavior of commercial television broadcasters in markets where the distribution of viewer tastes varies.
Our results show that a highly “clustered” market enables the broadcaster to offer a program of a popular type but with lower
quality (i.e., lower production values) than is the case when viewers have more diffused tastes. We find that viewer equity
in the television market (i.e., the percentage of all potential viewers who have at least one program they consider worth
watching) and viewer welfare (i.e., total consumer surplus) may not coincide. Depending upon the distribution of viewer tastes
and the cost of providing quality programming, the number of broadcasters required to fully cover the market to avoid market
failure may be greater than the number of broadcasters that produce greater viewer welfare. The study suggests that regulatory
bodies need to pay attention to the distribution pattern of viewer tastes and the broadcasters' desire for return on programming
investments, since both factors have important implications for competitive outcomes and viewer well-being.
The details of the new economic models of newspaper companies are widely discussed in the academic literature. However, the various consequences that these economic rationalities have among editorial staff working for the same newspaper are rarely addressed. Based on a case study of “Cities”, a new section of the French newspaper Le Monde financed by partnerships with private companies, this article considers the concrete consequences that introducing new funding mechanisms has on journalistic work. Its main contribution is to shed light on a tension between the production of symbolic hierarchies within the organization on the one hand, and, on the other, the strategies that relatively marginalized journalists use to assert a sense of professional collective belonging, which are based on a claim of shared knowledge and know-how.
Display advertising is a $50 billion industry in which advertisers’ (e.g., P&G, Geico) demand for impressions is matched to publishers’ (e.g., Facebook, Wall Street Journal) supply of them. An ideal match is one wherein the publisher’s ad impression is assigned to the advertiser with the highest value for it. Intermediaries (e.g., Google) facilitate this match between advertisers and publishers by managing data and providing optimization tools and algorithms for serving ads. Although these markets exhibit high allocative efficiency, we argue there is considerable scope for improvement.
The digital advertising industry has witnessed an impressive explosion since its inception. With Internet advertising revenues already at over $200 billion, the projections are for continued growth. The format and technological underpinnings of digital advertising make it a fascinating subject of study for practitioners and academics alike, and distinguish it from traditional advertising in many ways. In contrast to traditional advertising, online advertising offers significantly more channels, a lower cost alternative, greater targeting and personalization capabilities, and dynamic pricing capabilities. While these digital technologies offer unprecedented opportunities to marketers to maximize the ROI on their marketing budgets, the data-rich environment also presents a unique set of managerial, operational, and intellectual challenges. In this chapter, we introduce the reader to some of these challenges. Our goal is to identify some of the salient operational challenges facing advertisers and publishers in this digital advertising environment, and summarize the state of the art of the published research that attempts to address these challenges. Our hope is that practitioners, academics, and graduate students will find this to be a valuable resource in their various endeavors.
Display advertising has a 39% share of the online advertising market and is its fastest-growing category. In this paper, we consider an online display advertising setting in which a web publisher posts display ads on its website and charges based on the cost-per-impression (CPM) pricing scheme while promising to deliver a certain number of impressions on the ads posted. The publisher faces uncertain demand for advertising slots and uncertain supply of visits from viewers. We formulate the problem as a queueing system, where the advertising slots correspond to service channels with the service rate of each server synchronized with other active servers. We determine the publisher’s optimal price to charge per impression and show that it can increase in the number of impressions made of each ad, which is in contrast to the quantity discount commonly offered in practice. We show that the optimal CPM price may increase in the number of ads rotating among slots. This result is typically not expected because an increase in the number of rotating ads in the system can be interpreted as an increase in the service capacity. However, the capacity increase leads to an increase in the fill rate of the demand (the portion of demand satisfied by the publisher). Hence, the publisher can afford to optimally decrease the arrival rate by increasing the price.
The electronic companion is available at https://doi.org/10.1287/opre.2017.1697 .
Social networking related services (SNS) become increasingly popular communication and interaction mediums over internet. As most of the SNS are free, the providers generate revenues from advertising and other extension services. This paper investigates the advertising strategy and the strategic of compatibility and co-opetition between two social networking related services. Utilizing game theoretic model, we show that the providers will benefit from both service and business integration, however, the users are always worse when SNS services are compatibly connected. The users will always gain from the quality (features) competition, however, brand competition may hurt the customers as more disturbing ads will be exerted. In general, business integration will result in a higher diversity if ads exerted in two IM services.
Mobile devices are widely accepted as a convenient machine which provides computing capability as well we cell phone capability. Because of limited resources on mobile devices, complex applications could not be deployed on the devices. Service-based mobile applications (SMAs) can provide a solution to overcome the limitation by subscribing cloud services. Since SMAs have complex structures than standalone applications, it is challenging to develop high quality SMAs, to manage both services and mobile applications, and to implement automated billing for subscribed services. Therefore, there is a great demand for a platform for super mobile computing, which supports all key activities in managing life cycle of SMAs. In this paper, we present technical aspects of a platform which is under development; Super Mobile Autonomous Reliable plaTform (SMART). We believe that it provides a number of practical features which are essential in supporting life-cycle of SMAs; development, deployment, management, and operation.
The Internet has been a fast growing advertising medium. In this paper, we determine the optimal cost-per-impression (CPM) prices of display ads for a web publisher facing uncertain demand from advertisers requesting space on its website and uncertain supply of impressions from viewers. We formulate the problem as a novel queuing system, where the advertising slots correspond to service channels with the service rate of each server synchronized with other active servers. We derive a closed-form solution for the steady-state probabilities of the number of advertisers and show how the optimal CPM price is affected by the number of slots, the web traffic, the number of requested impressions, and other operational parameters. We show that the optimal price increases in the number of impressions made of each ad, which is in contrast to the quantity-discount commonly offered in practice. We show that the optimal CPM price may increase in the number of ads rotating among slots. Furthermore, we show that in competitive setting, a substantial web traffic increase for one publisher may lead all publishers to lose profits as a consequence of a price war.
At present, mixed-revenue about the combination with subscription fee revenue and advertising revenue is the main mode of revenue for online content providers. How to balance the two aspects of revenue to get the optimal revenue is the focus of this study. This article considers consumers' price sensitive level and advertisement sensitive level. Based on these concepts, we build a more realistic model of online consumer behavior. At the same time, this article conducts the market customer segmentation to estimate the structural state of the market demand. At last, we use matlab to solve this article's problem. The experimental result shows that considering the optimal combination of online content price and advertising intensity can get higher mixed-revenue. At the same time, considering consumers' price sensitive level and consumers' advertisement sensitive level in the market play a key role in the aspects of enhancing supplier's revenue.
The Internet has been a fast growing advertising medium. We consider a web publisher that generates revenues from displaying advertisements on its website with advertisers being supplied through an advertising network. The advertisers request their ad to be displayed to a certain number of visitors to the website. We focus on the main operational challenge of matching uncertain demand from advertisers requesting advertising space to uncertain supply from viewers. The publisher faces challenging decisions of determining the price per impression, number of advertising slots, number of advertisements that share each advertising slot and others. Our stylized model is a novel queueing system with no waiting space (loss system), where advertising slots correspond to servers. What sets this novel system apart from known multi-server queueing systems is its service mechanism; the advertising slots act as synchronized servers. We derive a closed-form solution for the system's steady-state probabilities and determine the optimal price. We analyze the publisher's optimal decisions and for example show that the optimal price increases in the number of impressions made of each ad, which goes against the quantity-discount commonly offered in practice. We illustrate that our model serves as an effective building block for more complicated settings such as competition, for which we provide some initial results.
This article examines on-line press advertising departments. The authors begin by describing these departments’ organizational embeddedness in the firm. They then study their positioning in the on-line display advertising market and highlight the overall power imbalance between supply (advertising departments) and demand (media agencies). Finally, they show that two competing conventions exist in the qualification of advertising products: a «traditional» convention that promotes press websites’ products; and a «performance» convention that is less suitable to them. The proliferation of performance convention equipment has meant that some press advertising department products are subject to a process of disqualification-requalification that results in a drop in prices.
We examine a two-sided market where intermediaries compete to attract advertising from firms and audience from buyers. Firms sell homogeneous products, compete in prices and must advertise them in the intermediary platforms to attract consumers. Buyers must subscribe to the intermediaries to receive product and price information. We show that a monopolist intermediary maximizes profits by oering advertising for free and getting the bulk of its profits from consumers. In this way the intermediary fully internalizes the externalities between buyers and sellers, which produces an ecient outcome. By contrast, when the market for information is operated by competing intermediaries, firms' and consumers' attempts to obtain surplus from participation lead to the emergence of coordination frictions, which produce a market failure. Eciency can only be restored if consumers multi-home surely and intermediaries entry costs are suciently low.
The diffusion of the internet has substantially modified the advertising industry's business models. The method of selling advertising space on webpages is one of the most striking innovations. Advertisements and, in particular, banners, are sold through the traditional cost per impression, but also with methods based on a visitor taking some specifically defined action in response to an ad. This paper examines the pricing strategy of web publishers operating in a market where they are unable to influence the price of the advertisement (cost-per-impression and cost-per-action). The main finding is that the distribution of editorial revenues between pay-per-view and pay-per-click methods depends on the elasticity of access and actions with respect to the quantity of advertising. The theoretical result is important, since these parameters are usually available to permit a quick analysis of an online consumer's behaviour.Journal of Revenue & Pricing Management (2004) 2, 295-302; doi:10.1057/palgrave.rpm.5170078
The study investigated how various creatively heterogeneous actors interact in media habitats and determined management approaches for optimizing content creation. While many scholars have focused on problem solving and innovation, few have studied the effects of artistic or problem finding creativity in an organizational setting. This interdisciplinary research was guided by a framework, consisting of fourteen hypotheses, that mapped relationships among primary variables including: Profile Diversity (balance between two distinct personality-based creativity profiles, problem finding and solving), Values Diversity, Voice, “Coflict” (four ratios of conflict and cooperation), self-reported outcomes (Publication, Senior Management, and Social Mission), and independent expert-judged outcomes (Creativity, Technical Goodness, and Aesthetics).The empirical study, based on a hybrid cross-sectional and longitudinal survey series strategy, primarily used three instruments to collect data. In three waves with 45 key measures, responses were gathered from a number of senior management team members (for small mission-driven North American publications), from confirmed artists and scientists, and from independent expert judges who rated products from each publication. To explore and test hypotheses, a variety of statistical methods were used, including hierarchical linear and logistic regression modeling.Surprisingly, the results confirmed a consistently perfect polarity of mean personality factor scores between finders and solvers. Along five personality dimensions, both groups significantly differed in terms of Factor 1 Socialized, Factor 4 Unexploring, and Factor 5 Eager. The study’s findings argue that small, mission-driven media enterprises may optimize products (i.e., creativity premium) and enhance organizational outcomes by leveraging diversity, situation, communication, and process variables. This assertion is supported by four secondary arguments that media teams can benefit from: 1) engaging in higher levels of Conflict 2, the ratio of Content Conflict to the sum of Process and Relationship Conflict; 2) constructing habitat environments characterized as high in Voiceand low in Network Congruence; 3) maximizing Profile Diversity while minimizing Values Diversity; and 4) better understanding the unique personalities and creative capabilities that both finders and solvers bring to the content creation process. The study concludes by discussing the top five most interesting opportunities for future research. For practice, senior management teams are encouraged to assess their situation and then engage in a dialog regarding how these study findings might be most usefully applied. This might then result in a strategic plan for change.
Exclusive advertising on a given media outlet is usually profitable for an advertiser because consumers are less aware of competing products. However, for such arrangements to exist, media must benefit as well. We examine conditions under which such exclusive advertising contracts benefit both advertisers and media outlets (referred to as stations) by illustrating that exclusive equilibria arise in a theoretical model of the media, advertisers, and consumers who participate in both the product and media markets. In the model, stations sell advertising space to advertisers and broadcast advertising messages to consumers.
Conditions leading to higher equilibrium levels of advertising can be unprofitable for advertisers because high levels of advertising make consumers better informed and thus lead to fiercer product price competition. As a result, media stations may be less profitable as well because their payoff is determined as a fraction of the advertiser surplus generated in the product market.
Stations mitigate this effect by offering advertisers exclusive advertising contracts. With such contracts, consumers are less informed about competing products, yielding higher producer surplus. It is profitable for stations to offer exclusivity when commercial advertising is an important means for advertisers to inform consumers about their products.
An economic model is created that emphasizes the characteristics of digital products. By focusing on price instead of quantity, the model examines the impact of low marginal costs and advertising revenue. The conditions for producing negative prices are explored along with the limitations of assuming linear demand curves in an e-commerce setting. The model explains observed phenomenon in Web examples including digital music, search engine competition, and social networks.
The paper provides a comprehensive review of the recent development of revenue management in different industries. We discuss research on different revenue management strategies including pricing, auctions, capacity control, overbooking and forecasting. Related issues such as economic concerns, customer perception, competition and consolidation, implementation, performance evaluation, and common techniques and approaches used for solving revenue management problems are also discussed. Finally, we give our suggestion on some important areas that warrant further research.
Information goods have several characteristics that make their pricing especially challenging. From the point of view of revenue management, bundling has many advantages that seem to match the challenges of pricing information goods. Because bundling is a value-based pricing strategy, segmentation has a significant role in supporting and increasing efficiency of bundling. In this context, we develop a conceptual model showing how many characteristics of information goods support or limit the selection of bundling as a pricing strategy. The conceptual model developed and the hypotheses stated are tested with conjoint analysis in the context of a new mobile TV service bundle. The mobile TV is a new innovation, and the service is expected to be launched in Finland in 2006. Totally 164 respondents gave answers to our internet survey. In this study, bundling increased the demand in all cases. However, consumers strongly preferred two-part pricing and flat access rates of new mobile TV services. Actually, our research findings give support to segmentation on the basis of bundling.
We describe a planning problem at a broadcasting company (e.g. a TV or radio channel). Advertisers place orders for commercials. Typically, each order consists of multiple spots, and the airdates of the spots are not fixed by the advertiser. Therefore, the channel has to decide simultaneously which orders to accept or to reject and when spots from accepted orders should be scheduled. We formally describe this problem in a mathematical model, present five heuristics, develop a rigorous method to generate a test bed and evaluate the performance of the heuristics on over 10,000 instances of various sizes.
We analyze the incentives of a provider of information goods to offer a proportion of his product for free, when consumers are uncertain about the quality of the good. The provider faces the following trade-off. On the one hand, the free version of the product acts as a partially informative signal; the higher the proportion of the product which is offered for free, that is, the higher the size of the free version, the higher the probability that a consumer will discover the true quality of the good. On the other hand, the higher the size of the free version, the lower the willingness to pay for the remaining parts of the product. In a separating equilibrium, a low quality seller offers no free version and sets the perfect information optimal price, whereas a high quality seller offers a free version of his product to signal his quality. In a pooling equilibrium, both low and high quality sellers propose free versions of their products.
We examine the equilibrium interaction between a market for price information (controlled by a gatekeeper) and the homogenous product market it serves. The gatekeeper charges fees to firms that advertise prices on its Internet site and to consumers who access the list of advertised prices. Gatekeeper profits are maximized in an equilibrium where (a) the product market exhibits price dispersion; (b) access fees are sufficiently low that all consumers subscribe; (c) advertising fees exceed socially optimal levels, thus inducing partial firm participation; and (d) advertised prices are below unadvertised prices. Introducing the market for information has ambiguous social welfare effects.
We extend the Baye and Morgan (2001) model to study competition between price comparison sites in the information market on the internet. We identify one symmetric sub-game perfect Nash equilibrium in which (1) price comparison sites set the same advertising fees; (2) the same proportion of consumers subscribe to each site; (3) each firm mixes between advertising on all sites and not advertising; and (4) advertised prices are dispersed. The introduction of additional price comparison sites may reduce social welfare and joint profits of price comparison sites. In the equilibrium with each consumer subscribing to one site, as the number of price comparison sites goes to infinity, the information market approaches that without price comparison sites.
We examine a model of locational choice in commercial media markets. Commercial media (stations) compete for audiences with their choice of programming variety in order to attract advertising revenues from advertisers. These advertisers (producers) compete in a differentiated product market and rely on advertising to inform consumers about their product. We use the model to show that media have incentives to minimize the extent of differentiation between them. This incentive is an implication of the assumed role of advertising as information and as an ultimate nuisance to the audience. When stations minimally differentiate their programming offerings, producers choose lower levels of advertising. Consequently, lower levels of product information are available to consumers, permitting producers to gain higher margins on product sales. As a result, stations can negotiate higher payments for advertising space. Copyright (c) 2003 Massachusetts Institute of Technology.
We show that the Varian model of sales with more than two firms has two types of equilibria: a unique symmetric equilibrium, and a continuum of asymmetric equilibria. In contrast, the 2-firm game has a unique equilibrium that is symmetric. For the n-firm case the asymmetric equilibria imply mixed strategies that can be ranked by first-order stochastic dominance. This enables one to rule out asymmetric equilibria on economic grounds by constructing a metagame in which both firms and consumers are players. The unique subgame perfect equilibrium of this metagame is symmetric.
We introduce adaptive learning behavior into a general-equilibrium life-cycle economy with capital accumulation. Agents form forecasts of the rate of return to capital assets using least-squares autoregressions on past data. We show that, in contrast to the perfect-foresight dynamics, the dynamical system under learning possesses equilibria that are characterized by persistent excess volatility in returns to capital. We explore a quantitative case for theselearning equilibria. We use an evolutionary search algorithm to calibrate a version of the system under learning and show that this system can generate data that matches some features of the time-series data for U.S. stock returns and per-capita consumption. We argue that this finding provides support for the hypothesis that the observed excess volatility of asset returns can be explained by changes in investor expectations against a background of relatively small changes in fundamental factors.
We examine the equilibrium interaction between a market for price information (controlled by a gatekeeper) and the homogenous product market it serves. The gatekeeper charges fees to firms that advertise prices on its Internet site and to consumers who access the list of advertised prices. Gatekeeper profits are maximized in an equilibrium where (a) the product market exhibits price dispersion; (b) access fees are sufficiently low that all consumers subscribe; (c) advertising fees exceed socially optimal levels, thus inducing partial firm participation; and (d) advertised prices are below unadvertised prices. Introducing the market for information has ambiguous social welfare effects.
It Takes Two to Tango
- Baye