Quantity restrictions on advertising, commercial media bias, and welfare

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Abstract

We study the welfare effect of a quantity restriction on advertising in free-to-air television (and other advertising financed media) in the presence of commercial media bias. Broadcasters face a trade-off between increasing the number of viewers by sending content that is highly valued by viewers, and increasing the price of advertising by choosing advertiser friendly content. A cap on advertising drives the per-viewer price of ads up; thus, content improves for viewers. Therefore, the cap can be welfare enhancing, even when viewers are not ad averse. Competition among broadcasters makes it more likely that a cap on advertising improves welfare. Thus, there is a complementarity between regulation and competition on this market. We also show that a tax on advertising revenues has quite different effects than a cap on advertising quantity.

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APA

Kerkhof, A., & Münster, J. (2015). Quantity restrictions on advertising, commercial media bias, and welfare. Journal of Public Economics, 131, 124–141. https://doi.org/10.1016/j.jpubeco.2015.09.004

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