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The informativeness of on-line advertising

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  • Taylor, Greg

Abstract

Sending general advertisements with inflationary claims may attract additional visitors with whom an advertiser is poorly matched. This is costly when ads are priced per-click because many visitors (clickers) will not purchase. This renders per-click advertising particularly conducive to the transmission of information via ads. The admissibility of information transmission depends not only on advertiser behaviour, but also upon consumers' interpretation of and trust in ads. In less conducive environments, consumers quickly learn to place little stock in the claims they see advertised. This mechanism undermines the ability of advertisers and consumers to communicate under per-impression or per-sale fee structures. Consumers benefit from increased informativeness, but distortions introduced by the market power given to advertisers imply that society may be better-off with no information transmission taking place.

Suggested Citation

  • Taylor, Greg, 2011. "The informativeness of on-line advertising," International Journal of Industrial Organization, Elsevier, vol. 29(6), pages 668-677.
  • Handle: RePEc:eee:indorg:v:29:y:2011:i:6:p:668-677
    DOI: 10.1016/j.ijindorg.2011.03.001
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    References listed on IDEAS

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    Cited by:

    1. Morteza Jamalzadeh & Navid Behravan & Roozbeh Masoudi, 2012. "An Empirical Study of Email-Based Advertisement and its Influence on Consumers’ Attitude," International Review of Management and Marketing, Econjournals, vol. 2(3), pages 130-138.
    2. 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.
    3. Alexandre de Cornière, 2013. "Search Advertising," Economics Series Working Papers 649, University of Oxford, Department of Economics.
    4. Michael Arnold & Éric Darmon & Thierry Pénard, 2012. "To Sponsor or Not to Sponsor: Sponsored Search Auctions with Organic Links," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201207, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
    5. Alexandre de Cornière, 2016. "Search Advertising," American Economic Journal: Microeconomics, American Economic Association, vol. 8(3), pages 156-188, August.

    More about this item

    Keywords

    Obfuscation; Advertising; Cheap talk; Performance-based pricing;

    JEL classification:

    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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