Global Network for Advanced Management: The Surprising Benefits of Television Commercials

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The Global Network for Advancement Management (GNAM) carried a research summary by IEMS’ Wenbo Wang explaining why, under certain conditions, television commercials can enhance or improve consumers’ television-watching welfare.

As quoted in the article:

Most people regard television commercials as nuisances that interrupt programs and viewing pleasure. But they do something else, says Professor Wang Wenbo: they give us an opportunity to play the field.

Professor Wang argues that searching other channels between shows is a way for consumers to resolve uncertainties and find a better program, thereby benefiting consumer welfare. He supports that argument in research that uses data collected before and after a unique ban in China on in-show commercials and finds consumers are no better off after the ban.

“Under some conditions, television commercials can enhance or improve consumers’ television watching welfare,” he said. “The logic is quite simple. TV shows are a product of high uncertainty because you don’t know exactly the quality of the shows on alternative channels. To resolve this uncertainty, you have to search these channels. But search is not free, it comes at a cost. You have to stop watching the current show to do the search.

“Our view is that the commercial break is a low-cost time window for consumers to search alternative channels. After the search, you have a positive chance of getting a show that is better than the current show you are watching, hence it improves consumer welfare.”

Read the full article here: Global Network for Advanced Management

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