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Structure of the market

Structure of the market. TV Contents. Distributor 1. Advertiser. Distributor 2. Consumers. Structure of the market. TV Contents. f. f. r. Distributor 1. Advertiser. Distributor 2. p 1. p 2. Consumers. Structure of the market. TV Contents. f. f. r. Distributor 1.

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Structure of the market

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  1. Structure of themarket TV Contents Distributor 1 Advertiser Distributor 2 Consumers

  2. Structure of themarket TV Contents f f r Distributor 1 Advertiser Distributor 2 p1 p2 Consumers

  3. Structure of themarket TV Contents f f r Distributor 1 Advertiser Distributor 2 p1 p2 Consumers Viewing time c

  4. Main mechanism and implications • Pay per view: • revenue of D depends on p (A,c), and on c • People do not likeadvertising: • Thus not only: p   A  • but also: A   viewing time  • Hence, giventhestructure of the model (advertisingprice r iscontrolledbythe TV): • D increases p abovethelevel TV wouldlike • In particular, D mayincrease such that A =0 • Not verysurprising: • If TV contentproviderhas all thebargaining power (= all downstreamrentsgetextracted)  possibilitytohave A = 0

  5. Optimal contracting • Because of splitdecisionrights: • profits not maximized • Consumer surplus? • But, theycan do better • Makeupstreamprice f dependent on downstreamprice p • Hasnothingto do withmarket = bargaining power • Whywouldyou not (therearenofrictions) • Ifyou do not like f(p): offercontractsdepennding on A*

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