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Media Firm Strategy and Advertising Taxes

Author

Listed:
  • 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.

Suggested Citation

  • Kind, Hans Jarle & Koethenbuerger, Marko & Schjelderup, Guttorm, 2011. "Media Firm Strategy and Advertising Taxes," Discussion Papers 2011/3, Norwegian School of Economics, Department of Business and Management Science.
    • Handle: RePEc:hhs:nhhfms:2011_003
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    File URL: http://hdl.handle.net/11250/164018
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    Cited by:

    1. Roberto Bombana & Carla Marchese, 2014. "Designing fees for music copyright holders in radio services," ECONOMIA E POLITICA INDUSTRIALE, FrancoAngeli Editore, vol. 2014(2), pages 5-19.

    More about this item

    Keywords

    Two-sided markets; media market; pricing strategy; taxation;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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