Competitive advertising on broadcasting channels and consumer welfare

We study a two-sided market for a broadcasting duopoly that incorporates competition through advertising on media platforms. Advertisements on a broadcasting channel induce nuisance costs on viewers. Advertising patterns also determine the degree of competition among producers by controlling the extent consumers are informed of rival products in an industry. In equilibrium, some advertisements have the role of intensifying competition among producers, and create an additional “information surplus” for consumers. The model emphasizes the role of information diffusion technologies among consumers, which influence the organization of advertising on competing broadcasters. We characterize all equilibria of the model, as well as the socially optimum level and allocation of advertising on media. Surprisingly, in equilibria with informative advertisements, consumers surplus is lower compared to the case in which no advertisement is informative. This is because the information benefits of advertising allow broadcasters to air too many advertisements in equilibrium. Hence, consumers are worse off precisely when they are in a position to benefit from the informational advantages of advertising.