Optimal Timing of TV Commercials: Symmetrical Model

CERGE-EI Working Paper No. 195

27 Pages Posted: 11 Nov 2002

See all articles by Tomas Kadlec

Tomas Kadlec

Charles University in Prague - CERGE-EI, a joint workplace of Charles University and the Economics Institute of the Czech Academy of Sciences

Multiple version iconThere are 2 versions of this paper

Date Written: January 2002

Abstract

In this paper I study the behavior of free-good producers (TV broadcasters) on a market where every consumer (TV viewer) perpetually makes a decision whether to consume and which product (TV channel) to consume contingent on the attractiveness of the currently consumed product. Every producer optimally allocates a time period where a product with higher attractiveness (TV program) is replaced by a product with lower attractiveness (advertising). While products with higher attractiveness represent producers' costs, products with lower attractiveness bring in revenue that is proportional to the audience reach. I assume that consumers choose among products and the outside option following a Markov process where probabilities of transition reflect various attractiveness of the products. Given symmetrical positions of the producers, I prove that their optimal strategy is to put their commercial breaks into the same or very close times. For some setting of the parameters, the breaks will overlap perfectly. Given the perfect overlap, both broadcasters are better off if they fragment their breaks into shorter breaks keeping the total amount of commercial time the same.

Suggested Citation

Kadlec, Tomas, Optimal Timing of TV Commercials: Symmetrical Model (January 2002). CERGE-EI Working Paper No. 195, Available at SSRN: https://ssrn.com/abstract=317864 or http://dx.doi.org/10.2139/ssrn.317864

Tomas Kadlec (Contact Author)

Charles University in Prague - CERGE-EI, a joint workplace of Charles University and the Economics Institute of the Czech Academy of Sciences ( email )

Politickych veznu 7
Prague, 111 21
Czech Republic

HOME PAGE: http://www.cerge-ei.cz

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