Advertising, profits, switching costs, and the Internet
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In this paper, I model the online media market. There are three types of players in the market: advertisers, publishers, and users. The advertising side of the market is competitive and publishers are price takers. To draw users, they compete in quality. I find that without any frictions, publishers will earn zero profits; however, if users face switching costs, publishers earn positive profits because they deteriorate quality to the locked-in users. I provide empirical evidence for this predicted correlation between financial performance and switching costs in advertising-supported online markets.