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The B.E. Journal of Economic Analysis & Policy

Editor-in-Chief: Jürges, Hendrik / Ludwig, Sandra

Ed. by Auriol , Emmanuelle / Brunner, Johann / Fleck, Robert / Mendola, Mariapia / Requate, Till / Zulehner, Christine / Schirle, Tammy


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1935-1682
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Media Competition on the Internet

Pedro P Barros1 / Hans Jarle Kind2 / Tore Nilssen3 / Lars Sørgard4

1Universidade Nova de Lisboa,

2Norwegian School of Economics and Business Administration,

3University of Oslo,

4Norwegian Competition Authority,

Citation Information: Topics in Economic Analysis & Policy. Volume 4, Issue 1, ISSN (Online) 1538-0653, DOI: 10.2202/1538-0653.1343, January 2005

Publication History

Published Online:
2005-01-05

Abstract

We present a model of competition between two advertising-financed media firms when consumers dislike advertising. We apply the model to analyze competition between Internet portals and find that equilibrium prices of advertising are higher the less differentiated the portals are perceived to be. Moreover, we find that the portals' aggregate profit increases if they integrate vertically with advertisers. This is true even if there is perfect competition between advertisers for advertising space. But if the portals are close substitutes, then it is profitable for one of the portals not to combine with an advertiser, and we end up with an asymmetric equilibrium with only one vertical merger - despite aggregate profits being higher with two.

Keywords: Advertising; Portals; Competition

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