Advertising Everywhere as a Collective Action Problem: Yes, There Are Too Many Ads

It is possible to live in a world in which there is objectively too much advertising.  As it happens, we currently live in such a world.  Notably, one can reach that conclusion without rejecting modern capitalism as a whole, or anything even close to that.  I am not trying to dissuade anyone from rejecting capitalism if they are so inclined, mind you, but that is simply a different argument.  For what it might be worth, I continue to be in the camp of those who say that carefully governed market economies are about as good as we can hope for in a fallen world, but the point here is that even a true believer in the magic of market competition can (and should) conclude that the current glut of advertising is evidence that something has gone off the rails.

Back when I taught undergraduate economics classes, it was unusual to question the concept of market efficiency itself, because that would reveal that the emperor truly had no clothes.  It was, however, quite normal to talk about "market failures" of various sorts.  One might reasonably ask why a professional guild that fiercely enforces the ideological conformity undergirding neoliberal market idolatry would allow anyone to suggest that markets could possibly fail.  In fact, however, such discussions have the salutary effect of reinforcing pro-market (and anti-government) orthodoxy.

How does that work?  If we look at "special cases" in which markets fail, then that necessarily implies that the general run of cases will see markets not failing by presumption (at most a rebuttal presumption).  And not failing means generating efficient -- there is that word again -- results.  This is hardly a novel insight on my part, of course, because critics have been pointing to the self-reinforcing nature of orthodox economic theory for as long as there has been an orthodoxy.  The ability to respond to differences in "the real world" from the model of "perfect competition" thus does a great deal of service for those who strain to preserve anti-government, anti-intervention defaults when thinking about economics.

The basic game works surprisingly well, so much so that many of the sub-fields in economics are responses to the failure of the real world to live up to the theory.  Industrial Organization is about "imperfect competition" (monopolies, oligopolies, and so on); Information Economics is about "impacted information" (including things like adverse selection and moral hazard); Environmental Economics is mostly about "externalities" and how to respond to them; and so on.  It is not even a light lift to "save" orthodox economics from what seem like fatal empirical failures, at least as a first pass.

All of which serves as background for my very simple observation here, which is not merely that the glut of advertising in modern life is aesthetically unpleasing -- which would be a classic matter of taste: de gustibus non est disputandum -- but is, as I said in the first paragraph above, objectively excessive.  How could we know this?

One of the most famous market failures in the textbooks is "public goods," which is an extreme variation on the concept of externalities.  Based on degrees of "rivalry" and "excludability," the meanings of which need not sidetrack us here, the basic idea is that there are times when people and firms will overuse something simply because they can.  This is the collective action problem, with the "tragedy of the commons" being its most famous example.  The classic story is about cows overgrazing on public lands because their owners do not care how their decisions affect everyone else.

Why think about this now, especially in the context of advertising?  A recent article in The New York Times ran under the headline "What Happened to Our Ad-Free TV?" and the sub-headline "Ads are here, there — almost everywhere — on streaming services now."  My muttered response: "Yeah, no sh*t."  To be clear, I am undeniably on the "I hate it" end of the spectrum when it comes to visceral responses to advertising.  Again, however, I am not trying to convince anyone reading this column to change their views about how much advertising they can or should tolerate.  The question is how one could know that things are objectively out of hand.

Thinking back to the days when sporting events were either broadcast on traditional TV stations or in more recent years on basic cable, the question facing every broadcaster was what to do with all of the eyeballs that were tuning in to watch a game.  This has always been true of non-sports shows as well, but I usually think of this in the context of sports, which presents the problem on steroids (appropriately enough).

As an ideal matter from the standpoint of the broadcaster, they would never even show the game at all, preferring instead simply to run back-to-back-to-back-to-back-to-... advertisements.  That, however, would be unsustainable, because eventually people would turn off the game, complain (possibly to Congress or the Justice Department), or not tune into the next game.

Is there a competitive equilibrium in such a situation?  Sure, in the sense that profit-motivated actors would settle on an amount of advertising somewhere between zero and 100 percent of broadcast time.  Because broadcast rights represent mini-monopolies, however, there is nothing resembling a competitive market for advertising in the sense that economic theorists understand that concept.  I would not be surprised to learn that there is a large extant academic literature discussing all of the factors that eventually determine the degree of advertising saturation that we see in various contexts.  It is all very complicated, and there must surely be some interesting contingent conclusions in the literature.

What that literature would have a difficult time showing (although I also would not be surprised if someone has tried to do so) is that somehow the kinds of imperfect competition that we see in the advertising world end up at the "efficient" quantity of advertising in any objective sense.  Making it even more complicated, this is not a static situation, especially because the amount of advertising that people tolerate before turning away will change as they are bombarded with more and more advertising, inuring them to what they quite recently would have rejected.

More complicated still is that people who feel that there is too much advertising then constitute a market for sidestepping advertising.  At the most elemental level, the threat that TV posed to movies was reversed, because people who hated watching ads on TV could go to the movies for their entertainment needs.  The "technological innovation" allowing people to kill TV ads did not need to be invented, because it already existed.  Even so, other innovative technologies soon came along to cater to those who hated advertising.

Enter TiVo (more generally, the digital video recorder, or DVR).  I received my first TiVo as a gift in 2003, and I loved it.  I could not imagine going back to watching in real time, a revolting thought that was reinforced every time I watched a game in a bar or when I was staying in a hotel that provided (at most) basic cable service.  It took quite some time for the DVR world to become corrupted, but at some point within the last decade, I stopped replacing and upgrading my TiVo box (and thus also stopped paying the ancillary fees to download program scheduling information).

Why did it no longer make sense to use a technology that had so wonderfully allowed me to skip ads, which I still despise?  Because the TiVo executives became so desperate for money in a world with many DVR competitors that they sold advertisements on the TiVo service itself.  That is, if a user hit "play" on a recorded program, TiVo would insert a commercial at the beginning.  I seem to recall that that advertisement could be skipped, but although I did not stick around long enough to see it happen, I assume TiVo soon made such ads non-skippable (or skippable for a fee).  It was especially annoying (almost ironic) that a company that came into existence to allow people to skip ads had begun to insert ads, but that should in fact ultimately not be surprising.

For that matter, the "ad-free experience" of movies has long been infiltrated by product placement, which means that the audience is paying to watch the film but also being bombarded with advertisements.  And with TV shows, that viewers would watch (and thus not opt out of) regular ads did not stop the shows themselves from selling product placements, which soon gave way to "branded" shows in which a product is not merely on display in the background or in a character's hand but is written into the show.  Episodes of "Friends" included "story" lines about Toblerone chocolates, Nestle Tollhouse cookies, and Pottery Barn.  "Community" completely gave itself over to Honda in one episode late in its run, and Subway-related "plots" also showed up frequently.

Shortly before I saw the recent article in The Times that I mentioned above, I had noticed the latest incursion into what had been (relatively) ad-free space: premium streaming services.  Yes, those services were selling content that includes product placements and all that, but buying a subscription to Prime Video had been at least a ticket into a world without advertisements.  No more.  I recently decided to binge a couple of Prime shows, and I quickly learned that Prime had gone the way of TiVo, but worse in two ways.  Not only are there now ads on the streaming service, but those ads are unskippable and they appear as ad breaks throughout the show rather than only at the beginning.  We are, in other words, back to broadcast TV.  I have not checked, but I assume that Prime is now selling an ad-free upgrade, but that was what people like me thought we were buying all along.

YouTube is an especially interesting variation on all of this.  In non-premium mode, YouTube will automatically include an ad at the beginning of most videos, and it will also insert (in an especially awkward way) ads into the middle of videos.  The "deal" for viewers was that one could watch a timer at the bottom right of the screen count down the seconds to the moment where one could "skip" the rest of the ad.  In the last few months, however, YouTube has inserted a second waiting period -- that is, even after the timer drops to zero seconds, a new ad with a new timer pops in and cannot be skipped.

I apologize for getting so far into the weeds with these details, but that is exactly the point of how this "market" works.  There are endless ways in which these companies can change the deal and insert more advertising, and although the standard libertarian cop-out is always available -- "Well, no one put a gun to their heads and forced them to watch the ads" -- that does not mean that the ever-evolving market equilibrium is optimal or efficient, even in the pure economic sense.

I once criticized Rand Paul, who responded to pandemic behavioral guidelines by saying that "Hayek had it right: Only decentralized power and decision-making, based on millions of individualized situations, can arrive at what risks and behaviors each individual should choose."  Even if one were to believe the misinterpreted recent "revelations" about the science behind various public health guidelines -- but beware that it is quite wrong to say, for example, that there was "no science" behind social distancing, only that there was not much to go on when choosing one meter as the minimum distance, as opposed to something larger -- that does not mean that "each individual should choose" (or not choose) to do things that can injure other people.  People systematically underestimate risks in such situations, making a naive belief in the wisdom of crowds a bad, dangerous joke.

The stakes in the world of advertising are much lower, of course, than they are in a pandemic that killed millions of people.  Because of that, one might believe that there is objectively too much advertising but then conclude that it would be better not to do anything about it (even if it were politically imaginable that this market could be regulated).  That does not, however, mean that we have the "efficient" amount of advertising.  I do not know what a "perfectly competitive market in advertising" would look like, but this is not it.