TILEC Work In Progress: Ittai Shacham

Commercial broadcast television channels provide free-to-view content funded via advertising. Many countries impose quantity restrictions on the amount of advertising in broadcast television. While ad quantity restrictions may suppress advertising levels, their byproduct may manifest through distortions to other attributes of television programming, such as content quality. The focus of this paper is on the relationship between regulation - both in terms of ad quantities and information provision - and content quality.

I develop a model of a broadcast television market characterized by two-sidedness, viewer learning, and strategic content providers. The model is estimated using high-frequency data from Israel pertaining to the broadcast television industry throughout 2005. Viewers’ ad-avoidance and television viewing persistence impose non-trivial externalities among channels. I use the estimated model to provide insight into the strategic relationship in quality competition in broadcast television. Counterfactual experiments imply that the current regulation is too restrictive, relaxing the ad quantity constraint by between 7-12% can lead to welfare gains of up to $53 million.

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