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Advertising Effectiveness, Digital Video Recorders, and Product Market Competition

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  • Bikram Ghosh

    (Moore School of Business, University of South Carolina, Columbia, South Carolina 29208)

  • Axel Stock

    (College of Business Administration, University of Central Florida, Orlando, Florida 32816)

Abstract

With increasing fragmentation of media markets and recent advances in technology, loss of advertising effectiveness has been a great concern for marketers. For consumers, the digital video recorder (DVR) offers the possibility to fast-forward through live programming. Whereas the DVR thus benefits consumers by reducing nuisance from commercials, industry observers believe that it may diminish advertisers' profits by rendering commercials ineffective. We use a model of informative advertising to study the effect of DVR penetration on competing advertisers' strategies and profits. We find that the overall effect of DVRs depends on the trade off between loss of advertising effectiveness and reduction in competition between firms. The latter effect arises because DVR penetration may increase the ratio of partially informed to fully informed consumers. We identify conditions under which an increase in DVR penetration counterintuitively leads firms to increase advertising levels and enjoy higher profits. Interestingly, we find that greater DVR penetration is beneficial for firms when the share of DVR owners in the population is above--rather than below--a threshold level. We also study the impact of different fast-forwarding ("zipping") behaviors on product market competition.

Suggested Citation

  • Bikram Ghosh & Axel Stock, 2010. "Advertising Effectiveness, Digital Video Recorders, and Product Market Competition," Marketing Science, INFORMS, vol. 29(4), pages 639-649, 07-08.
    • Handle: RePEc:inm:ormksc:v:29:y:2010:i:4:p:639-649
    DOI: 10.1287/mksc.1090.0544
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    References listed on IDEAS

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    Cited by:

    1. Jianqiang Zhang & Weijun Zhong & Shue Mei, 2012. "Competitive effects of informative advertising in distribution channels," Marketing Letters, Springer, vol. 23(3), pages 561-584, September.
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    4. Bikram Ghosh & Michael R. Galbreth, 2013. "The Impact of Consumer Attentiveness and Search Costs on Firm Quality Disclosure: A Competitive Analysis," Management Science, INFORMS, vol. 59(11), pages 2604-2621, November.
    5. Wenyi Wang & Qiang Guo, 2023. "Subscription strategy choices of network video platforms in the presence of social influence," Electronic Commerce Research, Springer, vol. 23(1), pages 577-604, March.

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