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Program Quality Competition in Broadcasting Markets

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Journal of Public Economic Theory

Published online on

Abstract

This paper develops a duopoly model where broadcasters first choose their program quality and then their pricing strategy. Two alternative financing schemes are considered: pay‐TV and free‐to‐air. We find that, from a welfare perspective, a pay‐TV regime always generates inadequate quality and advertising, whereas free‐to‐air might produce excessive quality and advertising. In the case of asymmetric competition, a pay‐TV broadcaster always has a stronger incentive to conduct research and development than a free‐to‐air broadcaster does. Both platforms could either over‐ or underinvest. The pay‐TV broadcaster always shows too few advertisements, but the free‐to‐air media might act in the opposite manner.