The TV Industry: Advertising and Programming

The key to an understanding of the TV industry is the market for TV advertising. We present a model of this market that also encompasses the product markets and the viewer market. Because viewers dislike commercials, there is congestion in advertising, and TV channels offer complementary goods to advertisers. A move from a TV monopoly to a TV duopoly, we find, may reduce both the total number of viewers and the total amount of TV advertising. A softening of competition in each product market results in more investment in programming, higher price per advertising slot, and more advertising. (98 words) *This is a revision of parts of a paper titled “TV Advertising, Programming Investments, and ProductMarket Oligopoly”. The results of the rest of that paper now appear in a paper titled “Who Are the Advertisers?”. We are indebted to Philippe Cyrenne, Ted Frech, Laurent Linnemer, and seminar participants at the Universities of Calgary, California-Berkeley, California-Santa Barbara, and Colorado, at Northwestern University and Copenhagen Business School, and at the 2000 CEA (Vancouver), EARIE (Lausanne), and EEA (Bolzano) meetings, for helpful comments. Part of this research is financed by the Norwegian Research Council, the Norwegian Competition Authority, and the Norwegian Ministry of Government Administration, through SNF (The Foundation for Research in Economics and Business Administration). Part of Nilssen's research was done during a visit at the Haas School of Business at the University of California, Berkeley. Part of Sørgard's research was done during a visit at the Department of Economics at the University of California, Santa Barbara. The hospitality of the two institutions, as well as travel grants from the Research Council of Norway and the U.S.-Norway Fulbright Foundation for Educational Exchange, are gratefully acknowledged.