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The Effectiveness and Targeting of Television Advertising

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  • Ron Shachar
  • Bharat N. Anand

Abstract

Television networks spend about 16% of their revenues on tune-ins, which are previews or advertisements for their own shows. In this paper, we examine two questions. First, what is the informational content in advertising? Second, is this level of expenditures consistent with profit maximization? To answer these questions, we use a new and unique micro-level panel dataset on the television viewing decisions of a large sample of individuals, matched with data on show tune-in advertisements. The difference in effectiveness of advertisements between "regular" shows (about which viewers are assumed to have substantial information a priori) and "specials" (about which they have very little) reveals the value of information in advertisements and the different roles that information can play. The number of exposures for each individual is likely to be correlated with their preferences, since networks target their audiences. We address this endogeneity problem by controlling for observed, and integrating the unobserved, characteristics of individuals, and find that the estimated effects of tune-ins are still large. Finally, we find that actual expenditures on tune-ins closely match the predicted optimal levels of spending. Copyright (c) 1998 Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.

Volume (Year): 7 (1998)
Issue (Month): 3 (09)
Pages: 363-396

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Handle: RePEc:bla:jemstr:v:7:y:1998:i:3:p:363-396

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Web page: http://www.kellogg.northwestern.edu/research/journals/JEMS/

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Web: http://www.blackwellpublishing.com/journal.asp?ref=1058-6407&site=1

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Cited by:
  1. ANDERSON, Simon P. & GABSZEWICZ, Jean J., 2005. "The media and advertising : a tale of two-sided markets," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2005088, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Hans Jarle Kind & Tore Nilssen & Lars S�rgard, 2007. "Competition for Viewers and Advertisers in a TV Oligopoly," Journal of Media Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 20(3), pages 211-233.
  3. Levent Çelik, 2008. "Monopoly Provision of Tune-ins," CERGE-EI Working Papers wp362, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  4. Tore Nilssen & Lars Sørgard, 2003. "TV Advertising, Program Quality, and Product-Market Oligopoly," Industrial Organization, EconWPA 0303012, EconWPA.
  5. Levent Çelik, 2008. "Viewer Sampling and Quality Signaling in a Television Market," CERGE-EI Working Papers wp363, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  6. Nilssen,T. & Sorgard,L., 2001. "The TV industry : advertising and programming," Memorandum, Oslo University, Department of Economics 18/2001, Oslo University, Department of Economics.
  7. C. Clark & Ulrich Doraszelski & Michaela Draganska, 2009. "The effect of advertising on brand awareness and perceived quality: An empirical investigation using panel data," Quantitative Marketing and Economics, Springer, Springer, vol. 7(2), pages 207-236, June.
  8. Doraszelski, Ulrich & Draganska, Michaela & Clark, C. Robert, 2007. "Information or Persuasion? An Empirical Investigation of the Effect of Advertising on Brand Awareness and Perceived Quality using Panel Data," Research Papers 1971, Stanford University, Graduate School of Business.
  9. Levent Çelik, 2008. "Strategic Informative Advertising in a Horizontally Differentiated Duopoly," CERGE-EI Working Papers wp359, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  10. Bharant N. Anand & Alexander Galetovic, 1998. "Weak Property Rights and hold-up in R&D," Documentos de Trabajo, Centro de Economía Aplicada, Universidad de Chile 39, Centro de Economía Aplicada, Universidad de Chile.

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