An Economic Approach to the Regulation of Direct Marketing

Abstract

Public complaints about the volume of direct marketing received have generated debate about whether direct marketing in certain communications media should be regulated or even banned. A microeconomic approach is used to analyze the benefits and costs to receivers of direct marketing, and especially the negative externality imposed on non-buyers who must spend time and effort on processing advertising messages. The analysis shows that it is important to understand the technical characteristics of each medium, particularly the relative costs of sending and receiving messages, along with other economic and technical factors, before determining whether to regulate direct marketing over that medium. This economic framework is then applied to both the traditional media of postal mail and wireline telephony, and the newer electronic and portable media of email, instant messaging, and mobile telephony. The strengths and weaknesses of the different types of solutions available are also considered.