Ifo Viewpoint No. 2: Bans on Advertising

Hans-Werner Sinn
Munich, 26 Oct. 1999

Advertising is the life-blood of a market economy. It allows consumers to compare products and creates the competition essential for free enterprise. Advertising facilitates consumers’ quests for information and encourages firms to improve quality, since they can present their quality improvements to their customers and thus enhance their profits. Even advertising with apparently weak statements can be informative, since advertising only pays for firms that offer high-quality products and that hope to make regular customers out of first-time buyers.

There is of course aggressive advertising that is all-pervasive and misleading advertising that suggests non-existent product qualities. Advertisements for habit-forming products allegedly aimed at adults but which appeal to adolescents and children can counteract parents’ educational goals, and parents have no real chance to prevent their children from being exposed to this advertising. To reduce the danger of misleading advertising, the scope of comparative advertising should be expanded and brought in line with US practices. Intrusive advertising such as ads via fax, email, loudspeakers and alongside highways should not be allowed. Advertisements for products that are harmful to health or those that are liable to have an undesirable influence on the moral development of young people should be restricted. Here, there are good arguments for the total ban on tobacco ads as planned by the EU. A comparison of OECD countries shows that a complete ban on tobacco ads can lead to a 7% decline in tobacco consumption. Private television channels that are readily receivable should be restricted in their broadcasts of commercially sponsored programmes that loosen taboos on sex and violence. Pay TV, which parents can choose to subscribe to or not, is the proper place for such programmes.

Otherwise, restrictions on advertising should be rejected to allow market forces to operate freely. Restrictions should be the exception to the rule and only in cases where impartiality prevails. Advertising restrictions aimed at protecting professional groups (doctors, lawyers, architects, etc.) and also intended to limit competition within these groups cannot be considered impartial and should therefore be abolished.

Hans-Werner Sinn
President of the Ifo Institute