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Targeted Value-Enhancing Advertising and Price Competition

Author

Listed:
  • Lynne Pepall

    (Tufts University)

  • Daniel Richards

    (Tufts University)

Abstract

Digital markets provide firms with vast amounts of consumer data. Economists who have explored this phenomenon have focused on how firms use data to implement price discrimination. Targeted advertising in this context transmits different price information to different consumers. However, advertising is itself often valued by consumers, and can be viewed as a complement to the advertised product. Such advertising may also be customized and targeted. We investigate how targeted value-enhancing advertising affects competition. Competing for consumers with targeted advertising leads overall to higher prices and increases consumer surplus but reduces profitability. In certain markets the advertising is inefficiently over-supplied.

Suggested Citation

  • Lynne Pepall & Daniel Richards, 2021. "Targeted Value-Enhancing Advertising and Price Competition," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 59(3), pages 443-459, November.
    • Handle: RePEc:kap:revind:v:59:y:2021:i:3:d:10.1007_s11151-021-09818-x
    DOI: 10.1007/s11151-021-09818-x
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    References listed on IDEAS

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