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

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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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Bibliographic Info

Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1758.

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Length: 46 pages
Date of creation: Mar 2010
Date of revision:
Handle: RePEc:cwl:cwldpp:1758

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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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Keywords: Targeting; Advertising; Online advertising; Sponsored search; Media markets;

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References

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  1. Bagwell, Kyle, 2007. "The Economic Analysis of Advertising," Handbook of Industrial Organization, Elsevier.
  2. Simon P. Anderson & Stephen Coate, 2005. "Market Provision of Broadcasting: A Welfare Analysis," Review of Economic Studies, Oxford University Press, vol. 72(4), pages 947-972.
  3. Ganesh Iyer & David Soberman & J. Miguel Villas-Boas, 2005. "The Targeting of Advertising," Marketing Science, INFORMS, vol. 24(3), pages 461-476, May.
  4. Jonathan Levin & Paul Milgrom, 2010. "Online Advertising: Heterogeneity and Conflation in Market Design," American Economic Review, American Economic Association, vol. 100(2), pages 603-07, May.
  5. Chandra, Ambarish & Kaiser, Ulrich, 2010. "Targeted advertising in magazine markets," ZEW Discussion Papers 10-063, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  6. Chandra, Ambarish, 2008. "Targeted Advertising: The Role of Subscriber Characteristics in Media Markets," MPRA Paper 7955, University Library of Munich, Germany.
  7. 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 608-13, May.
  8. Yongmin Chen & Chuan He, 2006. "Paid Placement: Advertising and Search on the Internet," Working Papers 06-02, NET Institute, revised Sep 2006.
  9. Varian, Hal R., 2007. "Position auctions," International Journal of Industrial Organization, Elsevier, vol. 25(6), pages 1163-1178, December.
  10. 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.
  11. Avi Goldfarb & Catherine Tucker, 2007. "Search Engine Advertising: Pricing Ads to Context," Working Papers 07-23, NET Institute, revised Sep 2007.
  12. Jorge A, Ferrando & Jean J, Gabszewicz & Didier Laussel & Nathalie Sonnac, 2004. "Two-Sided Network Effects and Competition : An Application to Media Industries," Working Papers 2004-09, Centre de Recherche en Economie et Statistique.
  13. 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.
  14. Justin P. Johnson & David P. Myatt, 2006. "On the Simple Economics of Advertising, Marketing, and Product Design," American Economic Review, American Economic Association, vol. 96(3), pages 756-784, June.
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Citations

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Cited by:
  1. 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 Environmental and Business Economics.
  2. Jonathan D. Levin, 2011. "The Economics of Internet Markets," NBER Working Papers 16852, National Bureau of Economic Research, Inc.
  3. A. Blasco & F. Sobbrio, 2011. "Competition and Commercial Media Bias," Working Papers wp767, Dipartimento Scienze Economiche, Universita' di Bologna.
  4. Dirk Bergemann & Alessandro Bonatti, 2010. "Targeting in Advertising Markets: Implications for Offline vs. Online Media," Cowles Foundation Discussion Papers 1758R, Cowles Foundation for Research in Economics, Yale University, revised Aug 2010.
  5. 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.
  6. Emilio Calvano & Bruno Jullien, 2011. "Issues in on-line advertising and competition policy: a two-sided market perspective," Working Papers 427, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  7. 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.
  8. James Rutt, 2011. "Aggregators and the News Industry: Charging for Access to Content," Working Papers 11-19, NET Institute, revised Sep 2011.

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