Correcting Audience Externalities in Television Advertising
Marketing Science
52 Pages Posted: 7 Jul 2009 Last revised: 4 Sep 2014
There are 2 versions of this paper
Correcting Audience Externalities in Television Advertising
Correcting Audience Externalities in Television Advertising
Date Written: September 11, 2013
Abstract
When a television advertisement causes viewers to switch channels, it reduces the audience available to subsequent advertisers. This audience loss is not reflected in the advertisement price, resulting in an audience externality. The present article analyzes the television network's problem of how to select, order, and price advertisements in a break of endogenous length in order to correct audience externalities. It proposes the Audience Value Maximization Algorithm (AVMA), which considers many possible advertisement orderings within a dynamic programming framework with a strategy-proof pricing mechanism. Two datasets are used to estimate heterogeneity in viewer switching probabilities and advertiser willingness-to-pay parameters in order to evaluate the algorithm's performance. A series of simulations shows that AVMA typically maximizes audience value to advertisers, increases network revenue relative to several alternatives, and runs quickly enough to implement.
Keywords: Television, Advertising, Marketing, Algorithms, Auctions
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Market Provision of Public Goods: The Case of Broadcasting
By Simon P. Anderson and Stephen Coate
-
Programming and Advertising Competition in the Broadcasting Industry
By Jean J. Gabszewicz, Didier Laussel, ...
-
Content and Advertising in the Media: Pay-Tv Versus Free-to-Air
By Martin Peitz and Tommaso M. Valletti
-
A Two-Sided, Empirical Model of Television Advertising and Viewing Markets
-
Spatial Competition in the Network Television Industry
By Ronald L. Goettler and Ron Shachar
-
Advertising, Competition and Entry in Media Industries
By Claude Crampes, Carole Haritchabalet, ...
-
Advertising, Competition and Entry in Media Industries
By Claude Crampes and Bruno Jullien
-
Two-Sided Markets with Pecuniary and Participation Externalities
By Markus Reisinger, Ludwig Ressner, ...
-
Coordination, Differentiation, and the Timing of Radio Commercials