Scandinavian Working Papers in Economics

Memorandum,
Oslo University, Department of Economics

No 15/2005: Advertising on TV: Under- or Overprovision?

Hans Jarle Kind (), Tore Nilssen () and Lars Sørgard ()
Additional contact information
Hans Jarle Kind: Norwegian School of Economics and Business Administration, Postal: Helleveien 30, NO-5045 Bergen, Norway
Tore Nilssen: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Lars Sørgard: Norwegian Competition Authority, Postal: Postboks 8132 Dep, 0033 Oslo, Norway

Abstract: We consider a model where TV channels transmit advertising, and viewers dislike such commercials. We find that the less differentiated the TV channels’ programs are, the lower is the amount of advertising in equilibrium. Relative to the social optimum, there is underprovision of advertising if TV channels are sufficiently close substitutes. In such a situation, a merger between TV channels may lead to more advertising and thus improve welfare. A publicly owned TV channel can partly correct market distortions, in some cases by having a larger amount of advertising than a private TV channel. It may actually have advertising even in cases where it is wasteful per se

Keywords: Television industry; Advertising; Public policy; Mixed oligopoly

JEL-codes: L82; M37

20 pages, May 22, 2005

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Published as
Hans Jarle Kind, Tore Nilssen and Lars Sørgard, (2007), 'Competition for Viewers and Advertisers in a TV Oligopoly', Journal of Media Economics, vol 20, pages 211-233

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