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The Online Advertising Industry: Economics, Evolution, and Privacy

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  • David S. Evans

Abstract

Online advertising accounts for almost 9 percent of all advertising in the United States. This share is expected to increase as more media is consumed over the Internet and as more advertisers shift spending to online technologies. The expansion of Internet-based advertising is transforming the advertising business by providing more efficient methods of matching advertisers and consumers and transforming the media business by providing a source of revenue for online media firms that competes with traditional media firms. The precipitous decline of the newspaper industry is one manifestation of the symbiotic relationship between online content and advertising. Online-advertising is provided by a series of interlocking multisided platforms that facilitate the matching of advertisers and consumers. These intermediaries increasingly make use of detailed individual data, predictive methods, and matching algorithms to create more efficient matches between consumers and advertisers. Some of their methods raise public policy issues that require balancing benefits from providing consumers more valuable advertising against the possible loss of valuable privacy.

Suggested Citation

  • David S. Evans, 2009. "The Online Advertising Industry: Economics, Evolution, and Privacy," Journal of Economic Perspectives, American Economic Association, vol. 23(3), pages 37-60, Summer.
  • Handle: RePEc:aea:jecper:v:23:y:2009:i:3:p:37-60
    Note: DOI: 10.1257/jep.23.3.37
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.23.3.37
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Avi Goldfarb & Catherine Tucker, 2012. "Privacy and Innovation," NBER Chapters,in: Innovation Policy and the Economy, Volume 12, pages 65-89 National Bureau of Economic Research, Inc.
    2. Yoon Kiho, 2010. "Optimal Quality Scores in Sponsored Search Auctions: Full Extraction of Advertisers' Surplus," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-11, July.
    3. Peitz, Martin & Reisinger, Markus, 2014. "The Economics of Internet Media," Working Papers 14-23, University of Mannheim, Department of Economics.
    4. Avi Goldfarb & Catherine E. Tucker, 2011. "Privacy Regulation and Online Advertising," Management Science, INFORMS, vol. 57(1), pages 57-71, January.
    5. 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.
    6. Cristiano Codagnone & Fabienne Abadie & Federico Biagi, 2016. "The Future of Work in the ‘Sharing Economy’. Market Efficiency and Equitable Opportunities or Unfair Precarisation?," JRC Working Papers JRC101280, Joint Research Centre (Seville site).
    7. He, Xi & Lopez, Rigoberto A. & Liu, Yizao, 2015. "Substitution between Online and Offline Advertising: Evidence from the Carbonated Soft Drink Industry," Working Papers 37, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    8. repec:bla:jemstr:v:26:y:2017:i:3:p:557-570 is not listed on IDEAS
    9. Acatrinei Carmen, 2015. "Remarks About Online Advertising - A Qualitative Research Among Romanian Professionals," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 1201-1206, July.
    10. repec:eee:joinma:v:26:y:2012:i:1:p:43-52 is not listed on IDEAS
    11. Jonathan Timmis, "undated". "The Internet and International Trade in Goods," Discussion Papers 12/08, University of Nottingham, GEP.
    12. Hartmut Egger & Josef Falkinger, 2016. "Limited Consumer Attention in International Trade," Review of International Economics, Wiley Blackwell, vol. 24(5), pages 1096-1128, November.
    13. 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.
    14. repec:eee:ijrema:v:27:y:2010:i:2:p:91-106 is not listed on IDEAS
    15. Henk Kox & Bas Straathof & Gijsbert Zwart, 2017. "Targeted advertising, platform competition, and privacy," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 26(3), pages 557-570, September.
    16. Jonathan Timmis, "undated". "The Internet and International Trade in Goods," Discussion Papers 12/03, University of Nottingham, School of Economics.
    17. Ogidi, Odun & Anthony U. Utulu, 2016. "Is the New Media Superior to the Traditional Media for Advertising," Asian Journal of Economic Modelling, Asian Economic and Social Society, vol. 4(1), pages 57-69, March.
    18. repec:hur:ijarbs:v:7:y:2017:i:7:p:366-386 is not listed on IDEAS
    19. Susan Athey & Emilio Calvano & Joshua Gans, 2013. "The Impact of the Internet on Advertising Markets for News Media," NBER Working Papers 19419, National Bureau of Economic Research, Inc.
    20. repec:kap:jcopol:v:40:y:2017:i:3:d:10.1007_s10603-017-9349-9 is not listed on IDEAS
    21. Aktas, Nihat & de Bodt, Eric & Roll, Richard, 2013. "MicroHoo: Deal failure, industry rivalry, and sources of overbidding," Journal of Corporate Finance, Elsevier, vol. 19(C), pages 20-35.
    22. Susan Athey & Emilio Calvano & Joshua S. Gans, 2014. "The Impact of Consumer Multi-homing on Advertising Markets and Media Competition," CSEF Working Papers 379, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 27 Apr 2016.
    23. Amedeo Piolatto, 2015. "Online booking and information: competition and welfare consequences of review aggregators," Working Papers 2015/11, Institut d'Economia de Barcelona (IEB).
    24. Tucker, Catherine E., 2012. "The economics of advertising and privacy," International Journal of Industrial Organization, Elsevier, vol. 30(3), pages 326-329.

    More about this item

    JEL classification:

    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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