Last year I did a paper entitled The Declining Cost of Advertising: Policy Implications. Not surprisingly, I was intrigued by the new report from the Competition and Markets Authority in the UK, entitled Online platforms and digital advertising market study . I’m still going through the report, which exceeds 400 pages, not including multiple appendixes.
But I just want to highlight one important point. The report repeatedly alludes to the impact of advertising on consumer prices for goods and services. For example:
The costs of digital advertising, which amount to around £14 billion in the UK in 2019, or £500 per household, are reflected in the prices of goods and services across the economy. These costs are likely to be higher than they would be in a more competitive market, and this will be felt in the prices that consumers pay for hotels, flights, consumer electronics, books, insurance and many other products that make heavy use of digital advertising.
But here’s the thing—ad spend in the UK, measured as a share of UK GDP, is more or less flat over the past thirty years (chart below). There’s no evidence that the burden on advertisers or consumers has increased because of the arrival of Google and Facebook to the UK ad market. Indeed, it may have gone down a bit, comparing the 1.1% peak in 2019 with the 1.2% peak in 2000, before Facebook existed and when Google advertising was first getting started.
Given how many places ads appear these days, it’s reasonable that advertising in the UK has become much more intensive over time–that is, in real units advertising has grown faster than overall real UK GDP. If so, then the shift to digital advertising has coincided with a fall in the price of advertising relative to other UK goods and services. The easiest interpretation, at least for me, is that advertisers are consistently getting a bigger bang for their buck from digital advertising, without paying more in total.
