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Is targeted advertising always beneficial?

Author

Listed:
  • Ben Elhadj-Ben Brahim, Nada
  • Lahmandi-Ayed, Rim
  • Laussel, Didier

Abstract

In this paper, we study a simple model in which two horizontally differentiated firms compete in prices and targeted advertising on an initially uninformed market. First, the Nash equilibrium is fully characterized. We prove that when the advertising cost is low, firms target only their “natural markets”, while they cross-advertise when this cost is high. Second, the outcome at equilibrium is compared with random advertising. Surprisingly, we prove that firms' equilibrium profits may be lower with targeted advertising relative to random advertising, while firms are given more options with targeted advertising.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:indorg:v:29:y:2011:i:6:p:678-689
    DOI: 10.1016/j.ijindorg.2011.03.002
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    References listed on IDEAS

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    More about this item

    Keywords

    Targeted and random advertising; Advertising cost; Spatial differentiation;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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