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The Online Advertising Industry: Economics, Evolution, and Privacy

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  • David S. Evans

Abstract

Online advertising accounts for almost 9 percent of all advertising in the United States. This share is expected to increase as more media is consumed over the Internet and as more advertisers shift spending to online technologies. The expansion of Internet-based advertising is transforming the advertising business by providing more efficient methods of matching advertisers and consumers and transforming the media business by providing a source of revenue for online media firms that competes with traditional media firms. The precipitous decline of the newspaper industry is one manifestation of the symbiotic relationship between online content and advertising. Online-advertising is provided by a series of interlocking multisided platforms that facilitate the matching of advertisers and consumers. These intermediaries increasingly make use of detailed individual data, predictive methods, and matching algorithms to create more efficient matches between consumers and advertisers. Some of their methods raise public policy issues that require balancing benefits from providing consumers more valuable advertising against the possible loss of valuable privacy.

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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 23 (2009)
Issue (Month): 3 (Summer)
Pages: 37-60

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Handle: RePEc:aea:jecper:v:23:y:2009:i:3:p:37-60

Note: DOI: 10.1257/jep.23.3.37
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  1. Simon P., ANDERSON & Jean J., GABSZEWICZ, 2005. "The media and advertising : a table of two-sided markets," Discussion Papers (ECON - Département des Sciences Economiques), Université catholique de Louvain, Département des Sciences Economiques 2005060, Université catholique de Louvain, Département des Sciences Economiques.
  2. Rochet Jean-Charles & Tirole Jean, 2006. "Externalities and Regulation in Card Payment Systems," Review of Network Economics, De Gruyter, De Gruyter, vol. 5(1), pages 1-14, March.
  3. Benjamin Edelman & Michael Ostrovsky & Michael Schwarz, 2007. "Internet Advertising and the Generalized Second-Price Auction: Selling Billions of Dollars Worth of Keywords," American Economic Review, American Economic Association, American Economic Association, vol. 97(1), pages 242-259, March.
  4. Mohammad Arzaghi & Ernst R. Berndt & James C. Davis & Alvin J. Silk, 2008. "Economic Factors Underlying the Unbundling of Advertising Agency Services," NBER Working Papers 14345, National Bureau of Economic Research, Inc.
  5. Alvin Silk & Lisa Klein & Ernst Berndt, 2002. "Intermedia Substitutability and Market Demand by National Advertisers," Review of Industrial Organization, Springer, Springer, vol. 20(4), pages 323-348, June.
  6. Evans David S., 2008. "The Economics of the Online Advertising Industry," Review of Network Economics, De Gruyter, De Gruyter, vol. 7(3), pages 1-33, September.
  7. Varian, Hal R., 2007. "Position auctions," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 25(6), pages 1163-1178, December.
  8. Bagwell, Kyle, 2007. "The Economic Analysis of Advertising," Handbook of Industrial Organization, Elsevier, Elsevier.
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Cited by:
  1. Avi Goldfarb & Catherine Tucker, 2012. "Privacy and Innovation," Innovation Policy and the Economy, University of Chicago Press, University of Chicago Press, vol. 12(1), pages 65 - 90.
    • Avi Goldfarb & Catherine Tucker, 2012. "Privacy and Innovation," NBER Chapters, in: Innovation Policy and the Economy, Volume 12, pages 65-89 National Bureau of Economic Research, Inc.
  2. Susan Athey & Emilio Calvano & Joshua Gans, 2013. "The Impact of the Internet on Advertising Markets for News Media," NBER Working Papers 19419, National Bureau of Economic Research, Inc.
  3. Lianos, I. & Motchenkova, E., 2012. "Market dominance and quality of search results in the search engine market," Discussion Paper, Tilburg University, Tilburg Law and Economic Center 2012-036, Tilburg University, Tilburg Law and Economic Center.
  4. Kiho Yoon, 2009. "Optimal quality scores in sponsored search auctions: Full extraction of advertisers' surplus," Discussion Paper Series 0904, Institute of Economic Research, Korea University.
  5. Jonathan Timmis, . "The Internet and International Trade in Goods," Discussion Papers 12/08, University of Nottingham, GEP.
  6. Henk Kox & Bas Straathof & Gijsbert Zwart, 2014. "Targeted advertising, platform competition and privacy," CPB Discussion Paper 280, CPB Netherlands Bureau for Economic Policy Analysis.
  7. Tucker, Catherine E., 2012. "The economics of advertising and privacy," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 30(3), pages 326-329.
  8. Lindstädt, Nadine & Budzinski, Oliver, 2012. "Newspaper vs. online advertising - Is there a niche for newspapers in modern advertising markets?," Ilmenau Economics Discussion Papers 73, Ilmenau University of Technology, Institute of Economics.
  9. Jonathan Timmis, . "The Internet and International Trade in Goods," Discussion Papers 12/03, University of Nottingham, School of Economics.
  10. Avi Goldfarb, 2014. "What is Different About Online Advertising?," Review of Industrial Organization, Springer, Springer, vol. 44(2), pages 115-129, March.
  11. Hartmut Egger & Josef Falkinger, 2013. "Limited Consumer Attention in International Trade," CESifo Working Paper Series 4166, CESifo Group Munich.

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