A Reply to “A Comment on 'Is Having More Channels Really Better? A Model of Competition Among Commercial Television Broadcasters' ”

  • Authors:

  • Yong Liu;Daniel S. Putler;Charles B. Weinberg

  • Affiliations:

  • Martin J. Whitman School of Management, Syracuse University, Syracuse, New York 13104;Sauder School of Business, University of British Columbia, Vancouver, British Columbia V6T 1Z2, Canada;Sauder School of Business, University of British Columbia, Vancouver, British Columbia V6T 1Z2, Canada

  • Venue:
  • Marketing Science
  • Year:
  • 2006

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Abstract

Liu et al. [Liu, Y., D. S. Putler, C. B. Weinberg. 2004. Is having more channels really better? A model of competition among commercial television broadcasters. Marketing Sci.23(1) 120--133] examine the television broadcast industry using a model in which profit-maximizing broadcasters seek to gain viewers by choosing the type of program to offer and by spending money to set program quality, allowing broadcasters to sell access to those viewers (through inserted advertisements) at a fixed rate per viewer. Wu and Chou [Wu, C., S. Chou. 2006. Commentary on “Is having more channels really better? A model of competition among commercial television broadcasters”. Marketing Sci.25(5) 541--545] argue that the duopoly result for a certain range of the cost parameter in Liu et al. is not a pure strategy Nash equilibrium. They further propose some modifications to the original model to restore Liu et al.'s results. In this reply, we demonstrate how a single strategy, not included in the strategy space of the Liu et al. duopoly model leads to the difference between our analysis and that of Wu and Chou. While we had intended to rule out this strategy, the text was not entirely clear on this issue; Wu and Chou's comment provides an opportunity to clarify the situation. We provide both empirical and theoretical support for excluding this strategy, which allows us to focus on the more plausible competitive situations in television broadcasting. We also reply to Wu and Chou's other comments on several issues, such as the relative importance of program type versus quality.