Does Self-regulation of Advertisement Length Improve Consumer Welfare?

Abstract

In Japan, TV platforms regulate themselves as to the length of the advertisements they air. Using modified Hotelling models, we investigate whether such self-regulation improves consumer and social welfare or not. When all consumers choose a single TV program (the utility functions of consumers satisfy the standard "full-coverage" condition), self-regulation always reduces consumer welfare. It improves social welfare only if the advertisement revenue of each platform is not small and the cost parameter of investments in improving the quality of TV programs is small. When some consumers have outside options (the standard "full-coverage" condition is not satisfied), self-regulation can benefit consumers because it increases the number of consumers who watch TV programs.