Distinct role of targeting precision of Internet-based targeted advertising in duopolistic e-business firms’ heterogeneous consumers market

Advances in information technologies and e-commerce enable e-business firms to collect detailed consumers’ data and send Internet-based targeted advertising to their potential consumers accurately, thereby performing B2C sales. However, the perfect targeting for an e-business firm is always a challenge due to the asymmetric information between the firm and consumers. This essay starts by setting up a model with two horizontally differentiated firms competing in prices and targeted advertising at a variable targeting precision in an initially uninformed heterogeneous consumers market. The results indicate that both e-business firms should target only their advantage markets with optimal targeting precision. Otherwise, each e-business firm’s equilibrium profit might be lower or higher with Internet-based targeted advertising comparing to mass advertising, which depends on the effective choice of distinct targeting precision. Finally, the effective investment on the optimal targeting precision for e-business firms pursuing the maximum profit in the B2C sales model is generated.