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Optimal Timing of TV Commercials: Symmetrical Model

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  • Tomas Kadlec

Abstract

In this paper I study the behavior of free-good producers (TV broadcasters) on a market where every consumer (TV viewer) perpetually makes a decision whether to consume and which product (TV channel) to consume contingent on the attractiveness of the currently consumed product. Every producer optimally allocates a time period where a product with higher attractiveness (TV program) is replaced by a product with lower attractiveness (advertising). While products with higher attractiveness represent producers’ costs, products with lower attractiveness bring in revenue that is proportional to the audience reach. I assume that consumers choose among products and the outside option following a Markov process where probabilities of transition reflect various attractiveness of the products. Given symmetrical positions of the producers, I prove that their optimal strategy is to put their commercial breaks into the same or very close times. For some setting of the parameters, the breaks will overlap perfectly. Given the perfect overlap, both broadcasters are better off if they fragment their breaks into shorter breaks keeping the total amount of commercial time the same.

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  • Tomas Kadlec, 2002. "Optimal Timing of TV Commercials: Symmetrical Model," CERGE-EI Working Papers wp195, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    • Handle: RePEc:cer:papers:wp195
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    1. Peterman, John L, 1971. "Concentration of Control and the Price of Television Time," American Economic Review, American Economic Association, vol. 61(2), pages 74-80, May.
    2. repec:crs:wpaper:9972 is not listed on IDEAS
    3. Simon P. Anderson & Stephen Coate, 2000. "Market Provision of Public Goods: The Case of Broadcasting," NBER Working Papers 7513, National Bureau of Economic Research, Inc.
    4. Jean Gabszewicz & Didier Laussel & Nathalie Sonnac, 1999. "TV-Broadcasting Competition and Advertising," Working Papers 99-72, Center for Research in Economics and Statistics.
    5. Gil S. Epstein, 1998. "Network Competition and the Timing of Commercials," Management Science, INFORMS, vol. 44(3), pages 370-387, March.
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