The Impact of the Internet on Advertising Markets for News Media

55 Pages Posted: 14 Sep 2013 Last revised: 24 Jul 2023

See all articles by Susan Athey

Susan Athey

Stanford Graduate School of Business

Emilio Calvano

University of Bologna - Department of Economics; University of Toulouse 1 - Department of Economics; CSEF - University of Naples Federico II - Centre for Studies in Economics and Finance (CSEF)

Joshua S. Gans

University of Toronto - Rotman School of Management; NBER

Date Written: September 2013

Abstract

In this paper, we explore the hypothesis that an important force behind the collapse in advertising revenue experienced by newspapers over the past decade is the greater consumer switching facilitated by online consumption of news. We introduce a model of the market for advertising on news media outlets whereby news outlets are modeled as competing two-sided platforms bringing together heterogeneous, partially multi-homing consumers with advertisers with heterogeneous valuations for reaching consumers. A key feature of our model is that the multi-homing behavior of the advertisers is determined endogenously. The presence of switching consumers means that, in the absence of perfect technologies for tracking the ads seen by consumers, advertisers purchase wasted impressions: they reach the same consumer too many times. This has subtle effects on the equilibrium outcomes in the advertising market. One consequence is that multi-homing on the part of advertisers is heterogeneous: high-value advertisers multi-home, while low- value advertisers single-home. We characterize the impact of greater consumer switching on outlet profits as well as the impact of technologies that track consumers both within and across outlets on those profits. Somewhat surprisingly, superior tracking technologies may not always increase outlet profits, even when they increase efficiency. In extensions to the baseline model, we show that when outlets that show few or ineffective ads (e.g. blogs) attract readers from traditional outlets, the losses are at least partially offset by an increase in ad prices. Introducing a paywall does not just diminish readership, but it furthermore reduce advertising prices (and leads to increases in advertising prices on competing outlets).

Suggested Citation

Carleton Athey, Susan and Calvano, Emilio and Gans, Joshua S., The Impact of the Internet on Advertising Markets for News Media (September 2013). NBER Working Paper No. w19419, Available at SSRN: https://ssrn.com/abstract=2325793

Susan Carleton Athey (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Emilio Calvano

University of Bologna - Department of Economics ( email )

Bologna
Italy

University of Toulouse 1 - Department of Economics ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

CSEF - University of Naples Federico II - Centre for Studies in Economics and Finance (CSEF) ( email )

Via Cintia
Complesso Monte S. Angelo
Naples, Naples 80126
Italy

Joshua S. Gans

University of Toronto - Rotman School of Management ( email )

Canada

HOME PAGE: http://www.joshuagans.com

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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