Media Firm Strategy and Advertising Taxes

Hans Jarle Kind, Marko Koethenbuerger and Guttorm Schjelderup

No 2011/3, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

Abstract: Empirical evidence suggests that people dislike ads in TV programs and other media products. In such situations standard economic theory prescribes that the advertising volume can be optimally reduced by levying a tax on ads. However, making use of recent advances in the theory of firm behavior in two-sided markets, we show that taxation of ads may be counterproductive. In particular, we identify a number of situations in which ad-adverse consumers are negatively affected by the tax, and we even show that the tax may lead to higher ad volumes. This unorthodox reaction to a tax may arise when consumers significantly dislike ads, i.e. in situations where traditional arguments for corrective taxes are strongest.

Keywords: Two-sided markets; media market; pricing strategy; taxation (search for similar items in EconPapers)
JEL-codes: H20 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2011-02-21
New Economics Papers: this item is included in nep-cul, nep-mkt, nep-pbe and nep-pub
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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