Advertising, Habit Formation, and the Peer Effect: How banning advertising to children changed consumption and welfare in Quebec’s toy industry.
Reiff, Joseph S.
- Overconsumption is a growing topic of concern as environmental and financial instability become more problematic in the developed world. Because advertising contributes to consumer habit formation and advertising targeting children is particularly effective, limiting children’s exposure to advertisements may result in short-term and long-term consumer change. In 1980, Quebec implemented the Consumer ... read moreProtection Act (CPA), which banned advertising targeting children in order to protect consumers that are supposedly less able to make informed decisions. Household expenditure survey data is used to empirically estimate a causal relationship between the CPA and household toy consumption in Quebec. I reveal that Quebec households with relatively large annual expenditures on toys experience a significant decrease in toy expenditure as a result of the CPA, but the decrease does not occur for over 10 years after the ban’s implementation. Quebec households that have relatively small annual toy expenditure experience a persistent decrease in toy expenditure as a result of the CPA within four years of the ban’s implementation. The empirical result provides support for the view that spending more on toys may cause deeper habit formation, which is more difficult to change by removing targeted advertising. In order to measure potential welfare changes caused by the CPA, we additionally provide an original model of advertising with peer effects by modifying a model developed by Dixit and Norman (1978). Using this model, we put forth an argument grounded in psychology that predicts banning advertising to children may have increased welfare in Quebec’s toy industry.read less