Handbook on the Economics of the Media
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Handbook on the Economics of the Media

Edited by Robert G. Picard and Steve S. Wildman

This Handbook explores the economic features of the media and its infrastructure to provide readers with a sophisticated understanding of the critical issues and their influence on companies, audiences and regulators. The contributors explore and explain the impact of underlying factors such as multi-sided platforms, advertising and industry structure. They assess the unique economic factors affecting print, broadcast and broadband-based media, and highlight how the economics of the media can influence policy making. Each original chapter introduces the reader to a specific topic, reviews the literature on the development of knowledge in the field, explores critiques of the approach, and provides an understanding of applying this knowledge and the implications.
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Chapter 6: The pricing of advertising

Agostino Manduchi

Extract

This chapter is devoted to a survey of the literature on the pricing of advertising. The term ‘advertising’ is understood in the sense that is most common among practitioners, namely as the various forms of communication initiated by the sellers and finalised with the cooperation of third parties whose goal is ‘to inform and/or persuade one or more people’ (Fletcher, 2010). Thus, the chapter does not cover activities that are often classified as advertising, in common language, but that are not covered by this definition, such as promotional initiatives related to the design and the packaging of products, sales and communications through the seller’s own channels. Consistently with the scope of the Handbook, the chapter focuses on the pricing of the transactions related to advertising in which one of the parties is a media outlet – in particular, the sale of advertising slots in newspapers and magazines, published either on-line or on paper, search engines, websites, TV and radio programmes. In 2012, the sellers of products and services spent an estimated US$483 on advertising (The Economist, 2011). Some forms of advertising were already observed in ancient societies. In classical Athens, for example, the public announcements of the town criers were interspersed with sponsored messages (Fletcher, 2010). The introduction of the printing press with movable type and the appearance of newspapers made advertisements cheaper to produce, and multiplied the opportunities for the sellers to advertise their products.

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