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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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    References listed on IDEAS

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    Cited by:

    1. Larbi Alaoui & Fabrizio Germano, 2012. "Time scarcity and the market for news," Economics Working Papers 1348, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 2014.
    2. Anderson, Simon P. & Jullien, Bruno, 2016. "The advertising-financed business model in two-sided media markets," TSE Working Papers 16-632, Toulouse School of Economics (TSE).
    3. Sahm, Marco & Greiner, Tanja, 2016. "How Effective Are Advertising Bans? On the Demand for Quality in Two-Sided Media Markets," Annual Conference 2016 (Augsburg): Demographic Change 145724, Verein für Socialpolitik / German Economic Association.
    4. repec:eee:iepoli:v:43:y:2018:i:c:p:48-60 is not listed on IDEAS

    More about this item

    Keywords

    Media bias; Advertising; Quantity restriction; Taxes; Two-sided markets;

    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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