Media competition enhances new-product entry: On the market for fake observations

•Two firms, an incumbent and an entrant, offer products of different qualities.•The products exert network externalities.•To attract customers, the firms use advertising, which is sold by a media firm.•Advertising affects consumers' beliefs on how many other consumers buy each product.•More competition in the media market facilitates entry in the product market.

We show how increased competition in a media market may have implications for the competition between firms that are advertising in that medium. We apply a simple model of a product market with network externalities where firms buy advertising space in a media market and find that entry in the product market of a new and superior product is more likely, the more competitive the media market is. The paper is the first combining a study of media markets with a behavioral foundation of how advertising affects the demand for the advertised products.