The dynamics of television advertising with boundedly rational consumers

Gomes, Orlando (2006): The dynamics of television advertising with boundedly rational consumers.

Abstract

The paper adapts a static model of television advertising into a dynamic scenario. In its original form, the model consists on a profit maximization problem of a television network working in a competitive environment. The network sells commercial time to advertisers and tries to minimize the effects of viewers’ aversion to ads. Viewers are assumed heterogeneous with regard to the preferences over the types of products companies sell through ad time. Into this framework we introduce an intertemporal rule reflecting the possible preference changes of consumers (these are boundedly rational and their utility for different types of products varies over time). The introduction of the intertemporal rule originates interesting dynamic results, namely in what concerns the evolution over time of crucial variables like the total time of broadcasting that networks allocate to advertising or the amount of revenues that satisfies the profit maximization condition. As in the original model, attention will be given to the possibility, that cable television allows, of ad addressability.

• Item Type: MPRA Paper
• Institution: Escola Superior de Comunicação Social - Instituto Politécnico de Lisboa
• Language: English
• Keywords: Television advertising; Networks’ profit maximization; Heterogeneous viewers; Ad addressability; Bounded rationality; Nonlinear dynamics
• Subjects: L - Industrial Organization > L8 - Industry Studies: Services > L82 - Entertainment ; Media; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C61 - Optimization Techniques ; Programming Models ; Dynamic Analysis; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M3 - Marketing and Advertising > M37 - Advertising

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