How Effective Are Advertising Bans? On the Demand for Quality in Two-Sided Media Markets

We study a two-sided markets model of two competing television broadcasters that offer content of differentiated quality to ad-averse consumers and advertising space to firms. As all consumers prefer high over low quality content, competition for viewers is vertical. By contrast, competition for advertisers is horizontal, taking into account the firms' targeted advertising motive. Analyzing the impact of both, the strength of mutual externalities and advertisement regulation policies, we find the following results: First, broadcasters' profits increase and welfare decreases in the viewers' nuisance costs of advertising. Second, welfare may decrease in the effectiveness of informative advertisement, too. Third, an advertising ban on the high quality medium reduces its viewer market share and thereby the equilibrium reception of high quality content.