Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 789: Paying to Remove Advertisements

Joacim Tåg ()
Additional contact information
Joacim Tåg: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden

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 benefits 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-codes: D42; L15; L59; M37

15 pages, February 13, 2009

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