The optimal ratio between advertising and sales income
by Andrea Mangani
International Journal of Revenue Management (IJRM), Vol. 1, No. 1, 2007

Abstract: We derive the optimal ratio between advertising and sales income when a publisher maximises its profits with respect to advertising space and product price. If consumers are more adverse towards advertising than towards price, the ratio is higher. The same theoretical framework is used to examine the relationship between the structure of media revenues and product quality. The findings of the model confirm empirical observations and some stylised facts of the media industry. In addition, we discuss some possible extensions of the model in order to include the evolution of business methods in media markets, and describe the managerial implications.

Online publication date: Sun, 29-Oct-2006

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