An empirical analysis of the demand for commercial television advertising

The purpose of this paper is to provide an empirical analysis of the demand for commercial television advertising in the Sydney metropolitan market as a case study using unpublished quarterly data. Though the focus of the paper is empirical in nature, prior to this a simple oligopolistic framework is used to examine the influence of competition on TV advertising prices. Particular attention is paid to justifying the use of both short- and long-run time-series modelling techniques in order to derive respective short- and long-run price elasticities of demand. Results seem to suggest that the price elasticity of demand is robust in terms of theoretical expectation in sign and statistical significance, but substantially less than unity in the short run, and neighbouring unity in the long-run. These results seem to be consistent with the findings of Cave and Swann (Report of Committee on Financing the BBC, 1986) and Tavakoli, Swann and Cave (mimeo, Brunel University, 1989) for the British TV market, but differ from those of Hendry (Journal of Policy Modeling 14(3), 1992) who estimated much larger elasticities for the same market. Without digressing into welfare implications, we also discuss what implications our results would have for the TV industry if policy initiatives likely to expand advertising supply on commercial TV were implemented.