Regulating Advertising Quantity: Is This Policy Efficient?

Abstract

There is a long debate whether TV advertising time should be restricted (as in the EU and UK nowadays) or be left unregulated (as in the US since 1982). This paper exploits a novel dataset of per hour data on 12 major TV broadcasters in France to investigate the efficiency of regulation using an empirical two-sided market model. I first estimate the demand function of TV viewers and advertisers, in order to account for the two-sidedness of the market in the supply decision of TV stations. I then identify the shadow prices of regulation based on the observed regulatory constraints. Finally, I conduct counterfactual simulations to calibrate the regulation’s impact on viewers and advertisers. The results suggest that deregulating the market would increase the market advertising level by 4%, reduce the number of views per advert by 2%, and increase the average advertising cost per view by 0.5%. Accordingly, deregulation could increase the TV broadcasters’ net advertising revenue by 7%, but reduce the surplus of advertisers, and possibly damage the surplus of TV viewers if the broadcasters do not commit to improving the program quality.