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Paying to Remove Advertisements

15 Pages Posted: 31 Jan 2011  

Joacim Tåg

Research Institute of Industrial Economics (IFN)

Multiple version iconThere are 2 versions of this paper

Date Written: February 13, 2009

Abstract

Media firms sometimes allow consumers to pay to remove advertisements from an advertisement-based product. We formally examine an ad-based monopolist’s incentives to introduce this option. When deciding whether to introduce the option to pay, the monopolist compares the potential direct revenues from consumers with lost advertising revenues from not intermediating those consumers to advertisers. If the option is introduced, the media firm increases advertising quantity to make the option to pay more attractive. This hurts consumers, but bene…ts the media firm and advertisers. Total welfare may increase or decrease. Perhaps surprisingly, more annoying advertisements may lead to an increase in advertising quantity.

Keywords: Advertising, damaged goods, media markets, price discrimination, two-sided markets, vertical differentiation

JEL Classification: D42, L15, L59, M37

Suggested Citation

Tåg, Joacim, Paying to Remove Advertisements (February 13, 2009). IFN Working Paper No. 789. Available at SSRN: https://ssrn.com/abstract=1750042 or http://dx.doi.org/10.2139/ssrn.1750042

Joacim Tåg (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

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