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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 advertisers (products) and many advertising markets (media). Each advertiser sells to a different segment of consumers, and each medium has a different ability to target advertising messages. We characterize the competitive equilibrium in the media markets and evaluate the implications of targeting in advertising 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 advertising. Yet, an improved targeting ability also increases the concentration of firms advertising in each market. Surprisingly, we then find that the equilibrium price of advertisements is first increasing, then decreasing in the targeting ability. We trace out the implications of targeting for competing media. We distinguish offline and online media by their targeting ability: low versus high. As consumers' relative exposure to online media increases, the revenues of offline media decrease, even though the price of advertising might increase.

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Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 661465000000000284.

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Date of creation: 22 Oct 2010
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Handle: RePEc:cla:levarc:661465000000000284

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  1. Bergemann, Dirk & Bonatti, Alessandro, 2010. "Targeting in Advertising Markets: Implications for Offline vs. Online Media," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7988, C.E.P.R. Discussion Papers.
  2. Justin P. Johnson & David P. Myatt, 2006. "On the Simple Economics of Advertising, Marketing, and Product Design," American Economic Review, American Economic Association, American Economic Association, vol. 96(3), pages 756-784, June.
  3. Ambarish Chandra & Ulrich Kaiser, 2010. "Targeted Advertising in Magazine Markets," CIE Discussion Papers, University of Copenhagen. Department of Economics. Centre for Industrial Economics 2010-02, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
  4. Kyle Bagwell, 2005. "The Economic Analysis of Advertising," Discussion Papers, Columbia University, Department of Economics 0506-01, Columbia University, Department of Economics.
  5. Yongmin Chen & Chuan He, 2011. "Paid Placement: Advertising and Search on the Internet," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 121(556), pages F309-F328, November.
  6. Simon P. Anderson & Stephen Coate, 2003. "Market Provision of Broadcasting: A Welfare Analysis," Virginia Economics Online Papers 358, University of Virginia, Department of Economics.
  7. Benjamin Edelman & Michael Ostrovsky & Michael Schwarz, 2005. "Internet Advertising and the Generalized Second Price Auction: Selling Billions of Dollars Worth of Keywords," NBER Working Papers 11765, National Bureau of Economic Research, Inc.
  8. Chandra, Ambarish, 2008. "Targeted Advertising: The Role of Subscriber Characteristics in Media Markets," MPRA Paper 7955, University Library of Munich, Germany.
  9. Ganesh Iyer & David Soberman & J. Miguel Villas-Boas, 2005. "The Targeting of Advertising," Marketing Science, INFORMS, INFORMS, vol. 24(3), pages 461-476, May.
  10. Avi Goldfarb & Catherine Tucker, 2007. "Search Engine Advertising: Pricing Ads to Context," Working Papers, NET Institute 07-23, NET Institute, revised Sep 2007.
  11. Varian, Hal R., 2007. "Position auctions," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 25(6), pages 1163-1178, December.
  12. Susan Athey & Joshua S. Gans, 2010. "The Impact of Targeting Technology on Advertising Markets and Media Competition," American Economic Review, American Economic Association, American Economic Association, vol. 100(2), pages 608-13, May.
  13. Jorge A, Ferrando & Jean J, Gabszewicz & Didier Laussel & Nathalie Sonnac, 2004. "Two-Sided Network Effects and Competition : An Application to Media Industries," Working Papers, Centre de Recherche en Economie et Statistique 2004-09, Centre de Recherche en Economie et Statistique.
  14. Jonathan Levin & Paul Milgrom, 2010. "Online Advertising: Heterogeneity and Conflation in Market Design," American Economic Review, American Economic Association, American Economic Association, vol. 100(2), pages 603-07, May.
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Cited by:
  1. Dirk Bergemann & Alessandro Bonatti, 2010. "Targeting in Advertising Markets: Implications for Offline vs. Online Media," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1758, Cowles Foundation for Research in Economics, Yale University.
  2. A. Blasco & F. Sobbrio, 2011. "Competition and Commercial Media Bias," Working Papers wp767, Dipartimento Scienze Economiche, Universita' di Bologna.
  3. Markus Mobius & Hamid Nazerzadeh & Gregory Lewis & Elisa Celis, 2012. "Buy-it-now or Take-a-chance: A New Pricing Mechanism for Online Advertising," 2012 Meeting Papers, Society for Economic Dynamics 443, Society for Economic Dynamics.
  4. A. Blasco & P. Pin & F. Sobbrio, 2011. "Paying Positive to Go Negative: Advertisers' Competition and Media Reports," Working Papers wp772, Dipartimento Scienze Economiche, Universita' di Bologna.
  5. Jonathan D. Levin, 2011. "The Economics of Internet Markets," NBER Working Papers 16852, National Bureau of Economic Research, Inc.
  6. Nadine Lindstädt & Oliver Budzinski, 2011. "Newspaper vs. Online Advertising – Is There a Niche for Newspapers in Modern Advertising Markets?," Working Papers, University of Southern Denmark, Department of Environmental and Business Economics 113/11, University of Southern Denmark, Department of Environmental and Business Economics.
  7. Emilio Calvano & Bruno Jullien, 2011. "Issues in on-line advertising and competition policy: a two-sided market perspective," Working Papers, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University 427, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  8. James Rutt, 2011. "Aggregators and the News Industry: Charging for Access to Content," Working Papers, NET Institute 11-19, NET Institute, revised Sep 2011.

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