Clubs,Advertising,and Cost Sharing

Abstract

This article investigates the impact of advertising, an additional source of club revenue, on membership. This issue is placed within the context of advertising on the Internet and corporate sponsorship of local events or public institutions such as museums. Two scenarios are looked at. In the first setting, a club’s costs are shared among members and, in effect, also with a monopolist advertiser. It is then shown that the presence of advertising revenues could possibly limit the need for club financing and cost sharing via larger memberships. However, in the second setting where it is assumed that the club’s costs are completely funded by advertising and no membership fees are charged, it is shown that the club provider’s incentives are no longer contrary to those of the advertiser. The opposite holds, and there is no cost-sharing implication to cutback on membership.