Either or both competition: a "two-sided" theory of advertising with overlapping viewerships

Abstract

This paper develops a model of platform competition in media markets allowing viewers to use multiple platforms. This leads to a nonstandard form of competition between platforms, in which they do not steal consumers from each other, instead negatively affect the value of viewers who end up connecting to both platforms. We label this form of competition \either or both." Our central result is that for a given number of platforms ownership structure does not affect advertising levels, despite the fact that there is nontrivial strategic interaction between platforms. This result holds for general viewer demand functions, and is robust to allowing for viewer fees and introducing heterogeneity among advertisers. If advertisers are homogenous enough then the equilibrium advertising level is ineciently high. We also demonstrate that entry of a channel leads to an increase in the advertising level if viewers' preferences for the channels are negatively correlated, in contrast with predictions of standard models with either/or competition. We validate this result in an empirical analysis using a panel data set of the U.S. cable television industry.