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Managing Television Commercial Inventory under Competition: An Equilibrium Analysis
Geng, Qin Mallik, Suman
Geng, Qin
Mallik, Suman
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Abstract
We develop a game theoretic model for managing prime time on-air ad inventory in the television industry. The ad inventory in this industry is priced based on rating points or the number of viewers that watch a commercial. The rating points are sold through two distinct processes: the upfront, which occurs before the broadcast season, and the scatter, which occurs throughout during the broadcast season. Television networks need to allocate their total rating points inventory to these two markets before knowing either the performance rating of their shows or the scatter market price, both of which are ex ante uncertain. The television networks offer performance guarantees on the inventory that is sold in the upfront market while such guarantees are not offered in the scatter market. We consider the inventory competition between two television networks under such a setting. To the best of our knowledge, ours is the first article to consider competition in media revenue management. We establish the existence of unique Nash equilibrium under quantity competition and describe the sensitivity of the equilibrium outcome with respect to various problem parameters. We show that choosing quantity over price during the upfront is a dominant strategy for a television network. We compare our competitive model with a centralized system and discuss the managerial implications for our work.
Description
This is the peer reviewed version of the following article: Geng, Q. and Mallik, S. (2019), Managing Television Commercial Inventory under Competition: An Equilibrium Analysis. Decision Sciences, 50: 170-201. https://doi.org/10.1111/deci.12317, which has been published in final form at https://doi.org/10.1111/deci.12317. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions. This article may not be enhanced, enriched or otherwise transformed into a derivative work, without express permission from Wiley or by statutory rights under applicable legislation. Copyright notices must not be removed, obscured or modified. The article must be linked to Wiley’s version of record on Wiley Online Library and any embedding, framing or otherwise making available the article or pages thereof by third parties from platforms, services and websites other than Wiley Online Library must be prohibited.
Date
2018-06-28
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Wiley
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Keywords
Game Theory, Inventory Management, Television networks, Uncertainty
Citation
Geng, Q. and Mallik, S. (2019), Managing Television Commercial Inventory under Competition: An Equilibrium Analysis. Decision Sciences, 50: 170-201. https://doi.org/10.1111/deci.12317