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Is targeted advertising always beneficial?

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  • Ben Elhadj-Ben Brahim, Nada
  • Lahmandi-Ayed, Rim
  • Laussel, Didier

Abstract

In this paper, we study a simple model in which two horizontally differentiated firms compete in prices and targeted advertising on an initially uninformed market. First, the Nash equilibrium is fully characterized. We prove that when the advertising cost is low, firms target only their “natural markets”, while they cross-advertise when this cost is high. Second, the outcome at equilibrium is compared with random advertising. Surprisingly, we prove that firms' equilibrium profits may be lower with targeted advertising relative to random advertising, while firms are given more options with targeted advertising.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 29 (2011)
Issue (Month): 6 ()
Pages: 678-689

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Handle: RePEc:eee:indorg:v:29:y:2011:i:6:p:678-689

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Web page: http://www.elsevier.com/locate/inca/505551

Related research

Keywords: Targeted and random advertising; Advertising cost; Spatial differentiation;

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Cited by:
  1. Rosa Branca Esteves & Joana Resende, 2013. "Competitive Targeted Advertising with Price Discrimination," NIPE Working Papers 07/2013, NIPE - Universidade do Minho.
  2. Stühmeier, Torben, 2012. "Target Advertising and Market Transparency," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62021, Verein für Socialpolitik / German Economic Association.
  3. Jianqiang Zhang & Weijun Zhong & Shue Mei, 2012. "Competitive effects of informative advertising in distribution channels," Marketing Letters, Springer, vol. 23(3), pages 561-584, September.

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