Esther Gal-Or and Anthony Dukes
We examine a model of locational choice in commercial media markets. Commercial media (stations) compete for audiences with their choice of programming variety in order to attract advertising revenues from advertisers. These advertisers (producers) compete in a differentiated product market and rely on advertising to inform consumers about their product. We use the model to show that media have incentives to minimize the extent of differentiation between them. This incentive is an implication of the assumed role of advertising as information and as an ultimate nuisance to the audience. When stations minimally differentiate their programming offerings, producers choose lower levels of advertising. Consequently, lower levels of product information are available to consumers, permitting producers to gain higher margins on product sales. As a result, stations can negotiate higher payments for advertising space.