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Informative Advertising and Optimal Targeting in a Monopoly


  • Esteban, Lola
  • Gil, Agustin
  • Hernandez, Jose M


This paper analyzes how the transition from mass to specialized advertising can affect the market outcomes. To that end, we consider a particular technology of information transmission which allows a monopolist to decide the optimal targeting strategy. From this starting point, we show that the use of targeted advertising is likely to increase the market price and reduce the level of advertising, and that the degree of media specialization chosen by the monopolist tends to exceed the socially optimal. Furthermore, our model indicates that the social loss resulting from the greater monopoly power might exceed the gain due to the lower wasting of ads, in such a way that targeting could reduce consumer surplus and, what is more important, the level of social welfare. Copyright 2001 by Blackwell Publishing Ltd

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  • Esteban, Lola & Gil, Agustin & Hernandez, Jose M, 2001. "Informative Advertising and Optimal Targeting in a Monopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 49(2), pages 161-180, June.
  • Handle: RePEc:bla:jindec:v:49:y:2001:i:2:p:161-80

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    References listed on IDEAS

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    Cited by:

    1. Peitz, Martin & Reisinger, Markus, 2014. "The Economics of Internet Media," Working Papers 14-23, University of Mannheim, Department of Economics.
    2. Galeotti, Andrea & Moraga-González, José Luis, 2008. "Segmentation, advertising and prices," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1106-1119, September.
    3. Karle, Heiko & Peitz, Martin, 2017. "De-targeting: Advertising an assortment of products to loss-averse consumers," European Economic Review, Elsevier, vol. 95(C), pages 103-124.
    4. Anderson, Simon P. & Jullien, Bruno, 2016. "The advertising-financed business model in two-sided media markets," TSE Working Papers 16-632, Toulouse School of Economics (TSE).
    5. Nick Vikander, 2011. "Targeted Advertising and Social Status," Tinbergen Institute Discussion Papers 11-016/1, Tinbergen Institute.
    6. Lola Esteban & José Hernández, 2012. "Specialized advertising media and product market competition," Journal of Economics, Springer, vol. 106(1), pages 45-74, May.
    7. Lola Esteban & Jose M. Hernandez, 2007. "Strategic Targeted Advertising and Market Fragmentation," Economics Bulletin, AccessEcon, vol. 12(10), pages 1-12.
    8. Jianqiang Zhang & Zhuping Liu & Weijun Zhong, 2016. "Attack and defend: the role of targeting in a distribution channel," Marketing Letters, Springer, vol. 27(2), pages 375-386, June.
    9. Alexandre de Cornière, 2013. "Search Advertising," Economics Series Working Papers 649, University of Oxford, Department of Economics.
    10. Li, Sanxi & Peitz, Martin & Zhao, Xiaojian, 2016. "Information disclosure and consumer awareness," Journal of Economic Behavior & Organization, Elsevier, vol. 128(C), pages 209-230.
    11. Gomes, Orlando, 2006. "The dynamics of television advertising with boundedly rational consumers," MPRA Paper 2847, University Library of Munich, Germany.
    12. Alexandre de Cornière & Romain De Nijs, 2013. "Online Advertising and Privacy," Economics Series Working Papers 650, University of Oxford, Department of Economics.
    13. Rick Harbaugh & Rahul Khemka, "undated". "Does Copyright Enforcement Encourage Piracy?," Claremont Colleges Working Papers 2000-14, Claremont Colleges.
    14. Immordino Giovanni, 2009. "Advertising and Cost Reduction," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-15, April.
    15. Alexandre de Cornière, 2016. "Search Advertising," American Economic Journal: Microeconomics, American Economic Association, vol. 8(3), pages 156-188, August.
    16. Ganesh Iyer & David Soberman & J. Miguel Villas-Boas, 2005. "The Targeting of Advertising," Marketing Science, INFORMS, vol. 24(3), pages 461-476, May.
    17. Ben Elhadj-Ben Brahim, Nada & Lahmandi-Ayed, Rim & Laussel, Didier, 2011. "Is targeted advertising always beneficial?," International Journal of Industrial Organization, Elsevier, vol. 29(6), pages 678-689.
    18. repec:kap:jeczfn:v:122:y:2017:i:1:d:10.1007_s00712-017-0526-8 is not listed on IDEAS
    19. Rosa Branca Esteves, 2007. "Customer Poaching and Advertising," NIPE Working Papers 12/2007, NIPE - Universidade do Minho.
    20. Arbatskaya, Maria & Konishi, Hideo, 2016. "Consumer referrals," International Journal of Industrial Organization, Elsevier, vol. 48(C), pages 34-58.
    21. Lola Esteban & José Hernández, 2014. "Endogenous direct advertising and price competition," Journal of Economics, Springer, vol. 112(3), pages 225-251, July.
    22. Lola Esteban & José Hernández, 2011. "Specialized advertising and price competition in vertically differentiated markets," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 2(2), pages 255-282, June.
    23. Andrea Galeotti & José Luis Moraga-González, 2004. "A Model of Strategic Targeted Advertising," CESifo Working Paper Series 1196, CESifo Group Munich.
    24. repec:eee:iepoli:v:39:y:2017:i:c:p:15-25 is not listed on IDEAS

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