Title

Advertising Effectiveness, Digital Video Recorders, and Product Market Competition

Authors

Authors

B. Ghosh;A. Stock

Comments

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Abbreviated Journal Title

Mark. Sci.

Keywords

advertising; game theory; competitive analysis; marketing strategy; advertising avoidance technologies; COMMERCIALS; INFORMATION; PROVISION; Business

Abstract

With increasing fragmentation of media markets and recent advances in technology, loss of advertising effectiveness has been a great concern for marketers. For consumers, the digital video recorder (DVR) offers the possibility to fast-forward through live programming. Whereas the DVR thus benefits consumers by reducing nuisance from commercials, industry observers believe that it may diminish advertisers' profits by rendering commercials ineffective. We use a model of informative advertising to study the effect of DVR penetration on competing advertisers' strategies and profits. We find that the overall effect of DVRs depends on the trade off between loss of advertising effectiveness and reduction in competition between firms. The latter effect arises because DVR penetration may increase the ratio of partially informed to fully informed consumers. We identify conditions under which an increase in DVR penetration counterintuitively leads firms to increase advertising levels and enjoy higher profits. Interestingly, we find that greater DVR penetration is beneficial for firms when the share of DVR owners in the population is above-rather than below-a threshold level. We also study the impact of different fast-forwarding ("zipping") behaviors on product market competition.

Journal Title

Marketing Science

Volume

29

Issue/Number

4

Publication Date

1-1-2010

Document Type

Article

Language

English

First Page

639

Last Page

649

WOS Identifier

WOS:000280810300004

ISSN

0732-2399

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