Welfare analysis of advertising regulation on media platforms

Abstract

This paper estimates the welfare effects of advertising regulation on TV. I develop a structural model of demand and supply, in which both the broadcasting content and the amount of advertising are endogenously determined. My results suggest that while the legislation imposes stricter advertising constraints during educational programming, it unintentionally reduces the incentives of TV broadcasters to provide this type of content. Removing the advertising constraints could drastically increase educational programming, offered under reasonable advertising levels. The total consumer surplus is higher when the advertising restrictions are repealed. This study highlights a trade-off between protecting consumers from excessive advertising and a reduction in content variety. Moreover, it provides evidence that firms' endogenous changes in content have a first-order impact on consumer welfare compared to changes in advertising levels.