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Sponsored content advertising in a two-sided market

Chatterjee, Prabirendra and Zhou, Bo 2021. Sponsored content advertising in a two-sided market. Management Science 67 (12) , pp. 7560-7574. 10.1287/mnsc.2020.3873

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Sponsored content advertising, also known as native advertising, is a new ad format in which a brand's content takes the same form and qualities of the publisher's original content. While many advertisers have largely embraced this new advertising format, consumers seem to react negatively towards sponsored content ads. In this paper, we present an analytical model that studies the strategic role of sponsored content advertising in a two-sided media market. We identify conditions under which competing platforms would choose sponsored content advertising over traditional advertising. Despite consumers' negative sentiment towards sponsored content ads, they can be better off together with the advertisers when both platforms choose this ad format. In fact, we show that a certain degree of consumer disliking is necessary to make both advertisers and consumers better off with sponsored content ads. However, both competing platforms offering sponsored content ads may also result in a Prisoner's Dilemma equilibrium outcome generating sub-optimal profits. We further show that two symmetric media platforms can choose different advertising strategies, leading to an asymmetric equilibrium outcome. Lastly, we analyze how the presence of multi-homing advertisers as well as an incomplete ad market coverage would affect the sponsored content ad equilibrium.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > H Social Sciences (General)
H Social Sciences > HB Economic Theory
Publisher: INFORMS (Institute for Operations Research and Management Sciences)
ISSN: 0025-1909
Date of First Compliant Deposit: 29 September 2020
Date of Acceptance: 12 September 2020
Last Modified: 15 Dec 2021 16:30

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