Should Utility-Reducing Media Advertising be Taxed?

Hans Jarle Kind (), Marko Köthenbürger () and Guttorm Schjelderup ()
Authors registered in the RePEc Author Service: Marko Koethenbuerger

No CESifo Working Paper No. 2589, CESifo Working Paper Series from CESifo Group Munich

Abstract: Empirical evidence suggests that people dislike ads in media products like TV programs. 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 Industrial Organization and two-sided markets we show that taxing 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; ad-tax (search for similar items in EconPapers)
JEL-codes: D40 D43 H21 H22 L13 (search for similar items in EconPapers)
Date: 2009
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