The impact of advertising regulation on industry: the cigarette advertising ban of 1971
This article studies the impact of the 1971 TV/radio advertising ban on the cigarette industry. Data indicate that industry advertising spending decreased sharply immediately following the ban but recovered and actually exceeded the preban level within five years. A dynamic oligopoly model of advertising is developed to incorporate two potential explanations. The estimated model fully accounts for the puzzling trend, with 74% of the postban advertising spending increase explained by industry dynamics, and 26% explained by learning. Furthermore, this article uses the new concept of nonstationary oblivious equilibrium to handle intractable state space and accelerate equilibrium computation.
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Document Type: Research Article
Publication date: June 1, 2013