The Effect of an Ad Ban on Retailer Sales: Insights from a Natural Experiment

Abstract

Advertising bans typically target products that deceive consumers in ways that can threaten their physical and mental health. An alternative policy objective might seek environmental protection through a ban on print advertising. Such measures would profoundly affect grocery retailers relying on printed leaflets to communicate weekly promotions. We measure the causal effect of banning advertising on retail performance by studying a temporary advertising ban implemented in a German federal state during the COVID-19 pandemic. The ban resulted in the suspension of all print advertising by grocery retailers, and the exogenous variation in advertising created by this natural experiment serves as our identification strategy. We apply difference-in-differences regressions to data from a national grocery retailer and find that the ban resulted in a 6% sales decrease in the treated state compared with an adjacent state. GfK Household Panel data reveals no effect of the advertising ban on the market level but a negative impact on retailers offering and advertising weekly promotional product assortments. We study the sensitivity of these results to the COVID pandemic and find that neither changes in COVID-19 incidence, vaccination rates, nor customers' mobility moderate the ad ban effect. The findings offer practical insights for regulators and retailers regarding the impact of ad bans and the value of advertising.