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Quantity restrictions on advertising, commercial media bias, and welfare

Listed author(s):
  • Kerkhof, Anna
  • Münster, Johannes
Registered author(s):

    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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    File URL: http://www.sciencedirect.com/science/article/pii/S0047272715001528
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    Article provided by Elsevier in its journal Journal of Public Economics.

    Volume (Year): 131 (2015)
    Issue (Month): C ()
    Pages: 124-141

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    Handle: RePEc:eee:pubeco:v:131:y:2015:i:c:p:124-141
    DOI: 10.1016/j.jpubeco.2015.09.004
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

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