Feeding the goose? The DMA and the economics of digital advertising

The European Union's Digital Markets Act (DMA) introduces significant transparency obligations regarding price and performance measurement for digital gatekeepers. This paper provides a theoretical economic analysis of these provisions, evaluating them against the ongoing debate on whether advertising is welfare-enhancing (informative) or socially wasteful (persuasive). The analysis suggests that while the DMA effectively targets information asymmetries and the so-called ad tech tax to foster market contestability and fairness, it remains agnostic to the normative implications of the advertising model itself. The paper argues that by lowering costs for advertisers without addressing the persuasive nature of advertising, the regulation risks fueling a zero-sum game, leading to a higher equilibrium volume of socially wasteful advertising. Thus, the respective DMA rules contribute to rent redistribution within the advertising sector rather than mitigating the systematic inefficiencies of an over-advertised digital economy. This suggests that structural or fiscal alternatives may be more appropriate to resolve these issues and their wider implications for the digital economy.