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We develop a dynamic equilibrium model of firm competition to
analyze the effects of counterfactual policies, such as taxes and
advertising restrictions, on pricing, advertising, consumption, and
welfare. Using micro-level data, we estimate how consumer exposure
to television commercials influences product choice and model
firms’ strategic competition over advertising budgets and pricing.
We exploit firms’ practice of delegating advertising slot decisions
to agencies to link consumer-level advertising variation to firms’
strategic choices. Our results show that a sugar-sweetened beverage
tax reduces advertising, while the additional impact of advertising
restrictions is significantly weaker when a tax is already in place.
