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Pricing of Media Platforms with Vertical Differentiation

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  • Lijun PAN

    (Nagoya University)

Abstract

Quality difference prevails among media firms featuring the two- sided property. This paper builds a two-sided duopoly model with vertical differentiation where consumers are heterogeneous in their preferences to high quality. We find that the media platform with high quality does not necessarily charge a higher subscription fee or advertising fee than the media platform with low quality in the presence of cross externalities between consumers and advertisers. In the consumer market, if the cross externality is sufficiently strong relative to the vertical differentiation in the consumer market and the horizontal differentiation on the advertising market, then the high-quality media firm charges a lower subscription fee than the low-quality media firm. In the advertising market, it is also possible for the high-quality firm to charge a lower subscription fee if the externality of consumers is weaker than the externality of advertisers.

Suggested Citation

  • Lijun PAN, 2017. "Pricing of Media Platforms with Vertical Differentiation," ECONOMIC COMPUTATION AND ECONOMIC CYBERNETICS STUDIES AND RESEARCH, Faculty of Economic Cybernetics, Statistics and Informatics, vol. 51(1), pages 249-262.
  • Handle: RePEc:cys:ecocyb:v:50:y:2017:i:1:p:249-262
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    References listed on IDEAS

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    1. 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.
    2. Simon P. Anderson & Stephen Coate, 2005. "Market Provision of Broadcasting: A Welfare Analysis," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(4), pages 947-972.
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    4. Jean J. Gabszewicz & Didier Laussel & Nathalie Sonnac, 2002. "Press Advertising and the Political Differentiation of Newspapers," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 4(3), pages 317-334, July.
    5. Caillaud, Bernard & Jullien, Bruno, 2003. "Chicken & Egg: Competition among Intermediation Service Providers," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 309-328, Summer.
    6. Jean J. Gabszewicz & Didier Laussel & Nathalie Sonnac, 2004. "Programming and Advertising Competition in the Broadcasting Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(4), pages 657-669, December.
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    Cited by:

    1. Gang Liu & Fengyue An, 2021. "Video Platforms’ Value-Added Service Investments and Pricing Strategies for Advertisers," Sustainability, MDPI, vol. 13(24), pages 1-24, December.

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    More about this item

    Keywords

    Media market; Vertical differentiation; Pricing; Two-sided platforms.;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media

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