The role of online platforms for media markets - Two-dimensional spatial competition in a two-sided market

- Consumers have heterogeneous preferences for style of coverage & type of medium.
- Online and offline markets differ in ad effectiveness.
- Established media outlets enter online market as a result of a prisoner's dilemma.
- Online technologies may lead to polarization (max differentiation in style & type).

We analyze the market for online and offline media in a model of two-dimensional spatial competition where media outlets sell content and advertising space. Consumer preferences are distributed along the style and type of news coverage where the distance costs may vary across dimensions. For integrated provision of online and offline platforms we show that entering the online market reduces average profits and may even constitute a prisoner's dilemma. Specialized provision may yield polarization in the style and type dimensions. This is in contrast to the maximum-minimum differentiation result previously established in the literature on multidimensional horizontal competition. We show that maximal differentiation in both dimensions occurs due to the discrete nature of the type dimension and asymmetric advertising markets.