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Media competition on the Internet

Barros, Pedro P.; Kind, Hans Jarle; Nilssen, Tore; Sørgard, Lars
Working paper
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URI
http://hdl.handle.net/11250/162754
Date
2004-08
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  • Discussion papers (SAM) [638]
Abstract
This paper presents a model of competition between two advertisingfinanced

media firms, and we apply the model to analyze competition between portals

on the Internet. First, we show that equilibrium prices of advertising are actually

higher the less differentiated the portals are perceived to be. Second, we show that

aggregate profit for the portals increases if they form each their vertical alliance with

advertisers. This is true even if there is perfect competition between the advertisers

for advertising space. However, we also demonstrate that it may be individually

profitable for one of the portals not to form a vertical alliance if the portals are

close substitutes. In that case we end up with an asymmetric equilibrium with only

one vertical alliance. This happens despite the fact that aggregate profit would be higher with two vertical alliances.
Publisher
Norwegian School of Economics and Business Administration. Department of Economics
Series
Discussion paper
2004:21

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