A Theory of Media Consumption and Demand, with Implications for Media Industry Structure and Firm Strategy

An economic theory of media consumption, logically consistent with studies from cognitive science and other observations, is developed based on two considerations impacting time allocation. First, media consumers rank media sources by the anticipated rate of utility gain. Second, a limited set of activities, including media consumption, can occur simultaneously to structured activities without distorting the utility from the structured activities. Optimal choice bounds individual consumption and leads to a formulation of demand for media used in the analysis of firm strategy and market structure. The results provide new insights into optimal advertising strategies, subscription pricing, competitive equilibrium characteristics, and observations from media related empirical studies.