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The Unbundling of Advertising Agency Services: An Economic Analysis

Author

Listed:
  • Arzaghi Mohammad

    (American University of Sharjah)

  • Berndt Ernst R.

    (Massachusetts Institute of Technology and National Bureau of Economic Research)

  • Davis James C.

    (U.S. Census Bureau)

  • Silk Alvin J.

    (Harvard Business School)

Abstract

We address a puzzle surrounding the shift from bundling to unbundling of U.S. advertising agency services and the slow pace of change over several decades. We model an agency’s decision as a tradeoff between the fixed cost to the advertiser of establishing a relationship with an agency and pecuniary economies of scale from media services provision. Using micro-data from the U.S. Census of Services for 1982-2007, we find agencies are more likely to unbundle with increasing size, diversification and higher media prices, and less likely with increasing age, larger media volume, and an interaction between media prices and volume.

Suggested Citation

  • Arzaghi Mohammad & Berndt Ernst R. & Davis James C. & Silk Alvin J., 2012. "The Unbundling of Advertising Agency Services: An Economic Analysis," Review of Marketing Science, De Gruyter, vol. 10(1), pages 1-55, December.
    • Handle: RePEc:bpj:revmkt:v:10:y:2012:i:1:p:1-55:n:4
    DOI: 10.1515/1546-5616.1164
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    References listed on IDEAS

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    Cited by:

    1. Alvin J. Silk & Marta M. Stiglin, 2016. "Build It, Buy It, or Both? Rethinking the Sourcing of Advertising Services," International Journal of Marketing Studies, Canadian Center of Science and Education, vol. 8(1), pages 1-13, February.
    2. Birger Wernerfelt & Alvin Silk & Shuyi Yu, 2021. "Internalization of Advertising Services: Testing a Theory of the Firm," Marketing Science, INFORMS, vol. 40(5), pages 946-963, September.
    3. Daniel H. Weinberg, 2016. "Talent Recruitment and Firm Performance," Journal of Sports Economics, , vol. 17(8), pages 832-862, December.
    4. Daniel H. Weinberg, 2013. "Talent Recruitment and Firm Performance: The Business of Major League Sports," Working Papers 13-54r, Center for Economic Studies, U.S. Census Bureau, revised Feb 2014.
    5. Horsky Sharon & Michael Steven C. & Silk Alvin J., 2012. "The Internalization of Advertising Services: An Inter-Industry Analysis," Review of Marketing Science, De Gruyter, vol. 10(1), pages 1-35, October.

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