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Quantity restrictions on advertising, commercial media bias, and welfare

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  • Kerkhof, Anna
  • Münster, Johannes

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.

Suggested Citation

  • Kerkhof, Anna & Münster, Johannes, 2015. "Quantity restrictions on advertising, commercial media bias, and welfare," Journal of Public Economics, Elsevier, vol. 131(C), pages 124-141.
    • Handle: RePEc:eee:pubeco:v:131:y:2015:i:c:p:124-141
    DOI: 10.1016/j.jpubeco.2015.09.004
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    Cited by:

    1. Simon P. Anderson & Bruno Jullien, 2015. "The advertising-financed business model in two-sided media markets," Post-Print hal-02866192, HAL.
    2. Changying Li & Youping Li & Jianhu Zhang, 2023. "On the regulation of public broadcasting," Journal of Economics, Springer, vol. 138(2), pages 129-146, March.
    3. Beattie, Graham, 2020. "Advertising and media capture: The case of climate change," Journal of Public Economics, Elsevier, vol. 188(C).
    4. Anna Kerkhof & Johannes Münster, 2023. "Strategic Complementarities in a Model of Commercial Media Bias," CESifo Working Paper Series 10738, CESifo.
    5. Alaoui, Larbi & Germano, Fabrizio, 2020. "Time scarcity and the market for news," Journal of Economic Behavior & Organization, Elsevier, vol. 174(C), pages 173-195.
    6. Henriques, David, 2020. "Effects of TV airtime regulation on advertising quality and welfare," LSE Research Online Documents on Economics 106963, London School of Economics and Political Science, LSE Library.
    7. Sahm, Marco & Greiner, Tanja, 2016. "How Effective Are Advertising Bans? On the Demand for Quality in Two-Sided Media Markets," VfS Annual Conference 2016 (Augsburg): Demographic Change 145724, Verein für Socialpolitik / German Economic Association.
    8. Henriques, David, 2021. "Effects of TV airtime regulation on advertising quality and welfare," Information Economics and Policy, Elsevier, vol. 55(C).
    9. Shunyao Yan & Klaus M. Miller & Bernd Skiera, 2020. "How Does the Adoption of Ad Blockers Affect News Consumption?," Papers 2005.06840, arXiv.org, revised Aug 2021.
    10. Anna Kerkhof & Johannes Münster, 2023. "Strategic Complementarities in a Model of Commercial Media Bias," ECONtribute Discussion Papers Series 261, University of Bonn and University of Cologne, Germany.
    11. Greiner, Tanja & Sahm, Marco, 2018. "How effective are advertising bans? On the demand for quality in two-sided media markets," Information Economics and Policy, Elsevier, vol. 43(C), pages 48-60.

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    More about this item

    Keywords

    Media bias; Advertising; Quantity restriction; Taxes; Two-sided markets;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media

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