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Media Firm Strategy and Advertising Taxes

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Author Info

  • Kind, Hans Jarle

    (Dept. of Economics, Norwegian School of Economics and Business Administration)

  • Koethenbuerger, Marko

    ()
    (Dept. of Economics, University of Copenhagen)

  • Schjelderup, Guttorm

    ()
    (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

Abstract

Empirical evidence suggests that people dislike ads in TV programs and other media products. In such situations standard economic theory prescribes that the advertising volume can be optimally reduced by levying a tax on ads. However, making use of recent advances in the theory of firm behavior in two-sided markets, we show that taxation of ads may be counterproductive. In particular, we identify a number of situations in which ad-adverse consumers are negatively affected by the tax, and we even show that the tax may lead to higher ad volumes. This unorthodox reaction to a tax may arise when consumers significantly dislike ads, i.e. in situations where traditional arguments for corrective taxes are strongest.

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Bibliographic Info

Paper provided by Department of Business and Management Science, Norwegian School of Economics in its series Discussion Papers with number 2011/3.

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Length: 27 pages
Date of creation: 21 Feb 2011
Date of revision:
Handle: RePEc:hhs:nhhfms:2011_003

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Related research

Keywords: Two-sided markets; media market; pricing strategy; taxation;

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Cited by:
  1. Bombana, Roberto & Marchese, Carla, 2012. "Designing Fees for Music Copyright Holders in Radio Services," POLIS Working Papers 166, Institute of Public Policy and Public Choice - POLIS.

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