Advertising effectiveness, digital video recorders, and product market competition

Bikram Ghosh, Axel Stock

Research output: Contribution to journalArticlepeer-review

13 Scopus citations

Abstract

With increasing fragmentation of media markets and recent advances in technology, loss of advertising effectiveness has been a great concern for marketers. For consumers, the digital video recorder (DVR) offers the possibility to fast-forward through live programming. Whereas the DVR thus benefits consumers by reducing nuisance from commercials, industry observers believe that it may diminish advertisers' profits by rendering commercials ineffective. We use a model of informative advertising to study the effect of DVR penetration on competing advertisers' strategies and profits. We find that the overall effect of DVRS depends on the trade off between loss of advertising effectiveness and reduction in competition between firms. The latter effect arises because DVR penetration may increase the ratio of partially informed to fully informed consumers. We identify conditions under which an increase in DVR penetration counterintuitively leads firms to increase advertising levels and enjoy higher profits. Interestingly, we find that greater DVR penetration is beneficial for firms when the share of DVR owners in the population is above-rather than below-a threshold level. We also study the impact of different fast-forwarding ("zipping") behaviors on product market competition.

Original languageEnglish (US)
Pages (from-to)639-649
Number of pages11
JournalMarketing Science
Volume29
Issue number4
DOIs
StatePublished - Jul 2010
Externally publishedYes

Keywords

  • Advertising
  • Advertising avoidance
  • Competitive analysis
  • Game theory
  • Marketing strategy

ASJC Scopus subject areas

  • Business and International Management
  • Marketing

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