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Targeting in Advertising Markets: Implications for Offline vs. Online Media

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  • Dirk Bergemann
  • Alessandro Bonatti

Abstract

We develop a model with many heterogeneous advertisers (products) and advertising markets (media). Each advertiser has a different consumer segment for its product, and each medium has a different ability to target advertisement messages. We characterize the competitive equilibrium in the media markets and investigate the role of targeting for the price and allocation of advertisements across media markets. An increase in the targeting ability leads to an increase in the total number of purchases (matches), and hence in the social value of advertisements. Yet, an improved targeting ability also increases the concentration of advertising firms in each market. Surprisingly, we find that the equilibrium price for advertisements is decreasing in the targeting ability over a large range of parameter values. We trace out the implications of targeting for competing media markets. We distinguish offline and online media by their targeting ability: low versus high. We show that competition by an online medium lowers the revenue of the offline medium more than competition by another offline medium of the same size.
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  • Dirk Bergemann & Alessandro Bonatti, 2010. "Targeting in Advertising Markets: Implications for Offline vs. Online Media," Levine's Working Paper Archive 661465000000000284, David K. Levine.
    • Handle: RePEc:cla:levarc:661465000000000284
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    References listed on IDEAS

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    Cited by:

    1. Emilio Calvano & Bruno Jullien, 2012. "Issues in Online Advertising and Competition Policy: A Two-sided Market Perspective," Chapters, in: Joseph E. Harrington Jr & Yannis Katsoulacos (ed.), Recent Advances in the Analysis of Competition Policy and Regulation, chapter 9, Edward Elgar Publishing.
    2. Susan Athey & Joshua S. Gans, 2010. "The Impact of Targeting Technology on Advertising Markets and Media Competition," American Economic Review, American Economic Association, vol. 100(2), pages 608-613, May.
    3. Alexandre de Corniere, 2013. "Search Advertising," Economics Series Working Papers 649, University of Oxford, Department of Economics.
    4. Blasco, Andrea & Sobbrio, Francesco, 2012. "Competition and commercial media bias," Telecommunications Policy, Elsevier, vol. 36(5), pages 434-447.
    5. Jonas Häckner & Sten Nyberg, 2012. "Every Viewer has a Price: On the Differentiation of TV Channels," Journal of Media Economics, Taylor & Francis Journals, vol. 25(4), pages 220-243, December.
    6. Avi Goldfarb & Catherine Tucker, 2011. "Search Engine Advertising: Channel Substitution When Pricing Ads to Context," Management Science, INFORMS, vol. 57(3), pages 458-470, March.
    7. Matthew Ellman, 2017. "Online Social Networks: Approval by Design," Working Papers 17-18, NET Institute.
    8. Lacetera, Nicola & Macis, Mario & Mele, Angelo, 2014. "Viral Altruism? Generosity and Social Contagion in Online Networks," IZA Discussion Papers 8171, Institute of Labor Economics (IZA).
    9. James Rutt, 2011. "Aggregators and the News Industry: Charging for Access to Content," Working Papers 11-19, NET Institute, revised Sep 2011.
    10. Alaoui, Larbi & Germano, Fabrizio, 2020. "Time scarcity and the market for news," Journal of Economic Behavior & Organization, Elsevier, vol. 174(C), pages 173-195.
    11. Dirk Bergemann & Alessandro Bonatti, 2010. "Targeting in Advertising Markets: Implications for Offline vs. Online Media," Cowles Foundation Discussion Papers 1758, Cowles Foundation for Research in Economics, Yale University.
    12. Nadine Lindstädt & Oliver Budzinski, 2011. "Newspaper vs. Online Advertising – Is There a Niche for Newspapers in Modern Advertising Markets?," Working Papers 113/11, University of Southern Denmark, Department of Sociology, Environmental and Business Economics.
    13. Avi Goldfarb & Catherine E. Tucker, 2011. "Privacy Regulation and Online Advertising," Management Science, INFORMS, vol. 57(1), pages 57-71, January.
    14. Dirk Bergemann & Alessandro Bonatti, 2015. "Selling Cookies," American Economic Journal: Microeconomics, American Economic Association, vol. 7(3), pages 259-294, August.
    15. Blasco, Andrea & Pin, Paolo & Sobbrio, Francesco, 2016. "Paying positive to go negative: Advertisers׳ competition and media reports," European Economic Review, Elsevier, vol. 83(C), pages 243-261.
    16. L. Elisa Celis & Gregory Lewis & Markus Mobius & Hamid Nazerzadeh, 2011. "Buy-it-now or Take-a-chance: A New Pricing Mechanism for Online Advertising," Working Papers 11-21, NET Institute, revised Nov 2011.
    17. Nadine Lindstädt & Oliver Budzinski, 2012. "Newspaper and Internet Display Advertising – Co-Existence or Substitution?," Working Papers 114/12, University of Southern Denmark, Department of Sociology, Environmental and Business Economics.
    18. Jonathan Levin, 2011. "The Economics of Internet Markets," Discussion Papers 10-018, Stanford Institute for Economic Policy Research.
    19. Avi Goldfarb, 2014. "What is Different About Online Advertising?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 44(2), pages 115-129, March.
    20. Eliaz, Kfir & Spiegler, Ran, 2016. "Incentive Compatible Advertising on a Social Network," CEPR Discussion Papers 11223, C.E.P.R. Discussion Papers.
    21. Alexandre de Corniere & Romain De Nijs, 2013. "Online Advertising and Privacy," Economics Series Working Papers 650, University of Oxford, Department of Economics.
    22. Santiago R. Balseiro & Omar Besbes & Gabriel Y. Weintraub, 2012. "Auctions for Online Display Advertising Exchanges: Approximations and Design," Working Papers 12-11, NET Institute.

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    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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