Price Competition, Advertising and Media Market Concentration*

In media markets, the value of advertisement exposure depends on circulation, and media consumers’ valuation is affected by advertising. This paper analyzes media market competition in a duopoly framework. There exist symmetric and asymmetric equilibria in terms of firm size. There is less scope for asymmetry when products are more differentiated or of higher intrinsic quality. Some media exhibit public good features. This increases the scope for asymmetry when consumers value advertising positively. If their valuation is negative only symmetric equilibria exist. Regulations limiting price competition increase the scope for natural monopoly. Finally, monopoly is a less likely outcome in subscription-based media markets. JEL Classification: D43, L11, L13, L15, M37