Demand for Advertising and its Impact on Media Content

Project Outcomes Statement

This project examined how the structure of advertising markets shapes competition among firms and influences the development of media content. Over five years, the research produced new data resources, empirical findings, and theoretical frameworks that substantially advance our understanding of advertising as a strategic input in both media and regulated markets.

Intellectual Merit
A central intellectual contribution of the project is the development of novel data infrastructure enabling advertiser-level analysis that had previously been infeasible. The project assembled and linked multiple new datasets, including detailed national television advertising prices and placements, historical advertiser–network relationships, advertising payments to physicians, linked Medicare prescription data at the individual level, and large-scale streaming subscription and viewership data. These resources overcame long-standing data limitations in industrial organization, marketing, and media economics, where advertising prices and access are typically assumed to be uniform. By enabling direct observation of heterogeneity in advertising prices, targeting, and responses to regulation, the project opened new avenues for empirical research.
Using these data, the project made fundamental contributions to understanding advertising market structure and price dispersion. Empirical analyses of the national television advertising market documented systematic and persistent price differences across advertisers purchasing the same inventory. Firms with longer-standing relationships to television networks receive substantial “legacy discounts,” amounting to approximately 0.5 percent lower prices per year of earlier market entry and cumulative cost advantages exceeding 20 percent relative to recent entrants. These findings demonstrate that advertising markets can confer durable advantages to incumbent firms, reshaping competition in downstream product markets. The results challenge standard modeling assumptions in both economics and marketing and establish advertising access and pricing as a critical dimension of competitive advantage.
The project also developed new theoretical and empirical results on the use of advertising in the pharmaceutical market, examining both firm behavior under regulation and the consequences of advertising for patient welfare. Exploiting quasi-experimental variation generated by the 340b drug pricing program, the project established that price caps reduce advertising to physicians on average but also induce strategic reallocation of promotional effort across products within firms’ portfolios. Firms decrease advertising for heavily discounted drugs while increasing effort for less constrained products, in some cases exceeding pre-regulation levels. A new theoretical framework explains how multi-product firms use advertising to mitigate exposure to regulation by shifting demand across products. These findings revise conventional wisdom that regulation uniformly dampens promotional incentives and provide a richer understanding of how regulatory design shapes firm behavior. Complementing this analysis of firm advertising behavior, the project examined the demand-side effects of pharmaceutical advertising by studying drug injury advertisements that recruit patients into lawsuits against drug manufacturers. This work shows that such advertising reduces prescription drug use and leads to worse health outcomes, highlighting how potentially misleading advertising can harm patient welfare and impose externalities on the healthcare system.
Finally, the project extended the analysis of advertising and content provision to digital streaming platforms, directly addressing how advertising influences media development in contemporary markets. The research developed new theoretical and empirical frameworks to study platforms offering both ad-supported and ad-free subscription tiers, incorporating consumer multi-homing behavior. Using newly acquired subscription and viewership data, the project analyzed how ad-supported tiers affect pricing, viewing patterns, market shares, and incentives for content differentiation. The results show that ad-supported models can simultaneously intensify competition for some consumers while softening it for others, with important implications for content variety and platform strategy. This work provides one of the first empirical approaches to evaluating advertising’s role in modern platform-based media markets.

Broader Impacts
The project’s findings have broad relevance for public policy, regulation, and antitrust enforcement. By demonstrating that advertising markets exhibit unequal access and persistent price advantages, the research informs merger review and competition policy, particularly in cases involving conglomerate mergers. The pharmaceutical advertising results provide timely evidence for debates over drug pricing regulation, including the unintended consequences of policies such as the 340b program. Insights into misleading or fear-based advertising further inform regulatory oversight by agencies such as the FDA and FTC.
The project also generated public research infrastructure by identifying new sources of plausibly exogenous variation in advertising incentives and by making data on hospital participation in price-cap programs available to other researchers. In addition, the project trained several graduate students in advanced empirical and theoretical methods at the intersection of industrial organization, marketing, and health economics. Through publications, conference and seminar presentations, and cross-disciplinary engagement, the project’s outcomes advance scholarly understanding of advertising markets and provide actionable insights for policymakers, practitioners, and researchers.