Paying to Remove Advertisements
15 Pages Posted: 16 Jan 2008 Last revised: 15 Oct 2009
Date Written: 2009
Media firms sometimes allow consumers to pay to remove advertisements from an ad-based product. We formally examine an ad-based monopolist's incentives to introduce this option. When deciding whether or not to introduce the option to pay, the monopolist compares the potential direct revenues from consumers who pay, with the lost advertising revenues resulting from the subsequent ad removal. If the pay alternative is introduced, the media firm increases advertising quantity to make the option to pay more attractive. This outcome hurts consumers but benefits the media firm and the 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: Suggested Citation