The Value of Sampling: The Case of TV Commercial Breaks

The Value of Sampling This is a first draft. Comments are welcome. This paper investigates consumer welfare implication of commercial breaks during television programmings. The conventional wisdom dictates that consumers prefer watching television without the disruption of commercial breaks. However, we argue that commercial breaks may improve the welfare of consumers under certain conditions. In particular, when there is uncertainty in television programmings such that a consumer is unclear about the exact utility levels of different channels, she has to engage in costly search to resolve the uncertainty before choosing a channel to watch. The commercial breaks lower the opportunity cost of search, allowing the consumer to sample alternative channels without (further) interrupting the viewing experience on her current channel. Starting January 1, 2012, Chinese government banned all in-show commercial breaks for episode-based TV series with the intention of improving the TV viewing experience of consumers. Using data from this natural experiment period in Chinese TV market, we estimate a sequential search model to evaluate our conjecture. Especially, this new policy of banning commercial breaks created exogenous variations in the data that allow us to separately identify heterogenous consumer preference and search cost. Based on the analyses, we have found evidence that the intended improvement in TV viewing experience was limited. Many consumers were worse off due to the ban on commercial breaks because they could no longer sample alternative channels that were more preferable than their current choices.