ENDOGENOUS CHOICE ON ADVERTISING PRICING OF MEDIA PLATFORMS: LUMP-SUM FEE VS. PROPORTIONAL FEE

Media platforms face the choice between lump-sum and proportional fees when they charge advertisers. This paper builds a two-stage dynamic game model to solve an endogenous choice problem with regard to the advertising pricing instruments of two media platforms. If either the proportional fee or the lump-sum fee is feasible, the dominant strategy for both platforms is to charge advertisers a proportional fee. This explains why online media platforms prefer to charge advertisers the proportional fee. We also examine the asymmetric pricing between two platforms that adopt different advertising schemes, which sheds light on the competition between online media and traditional media