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Targeting in Advertising Markets: Implications for Offline vs. Online Media

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  • Dirk Bergemann
  • Alessandro Bonatti

Abstract

We develop a model with many heterogeneous advertisers (products) and advertising markets (media). Each advertiser has a different consumer segment for its product, and each medium has a different ability to target advertisement messages. We characterize the competitive equilibrium in the media markets and investigate the role of targeting for the price and allocation of advertisements across media markets. An increase in the targeting ability leads to an increase in the total number of purchases (matches), and hence in the social value of advertisements. Yet, an improved targeting ability also increases the concentration of advertising firms in each market. Surprisingly, we find that the equilibrium price for advertisements is decreasing in the targeting ability over a large range of parameter values. We trace out the implications of targeting for competing media markets. We distinguish offline and online media by their targeting ability: low versus high. We show that competition by an online medium lowers the revenue of the offline medium more than competition by another offline medium of the same size.
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Suggested Citation

  • Dirk Bergemann & Alessandro Bonatti, 2010. "Targeting in Advertising Markets: Implications for Offline vs. Online Media," Levine's Working Paper Archive 661465000000000284, David K. Levine.
  • Handle: RePEc:cla:levarc:661465000000000284
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    References listed on IDEAS

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    1. Dirk Bergemann & Alessandro Bonatti, 2010. "Targeting in Advertising Markets: Implications for Offline vs. Online Media," Cowles Foundation Discussion Papers 1758, Cowles Foundation for Research in Economics, Yale University.
    2. Ambarish Chandra & Ulrich Kaiser, 2010. "Targeted Advertising in Magazine Markets," CIE Discussion Papers 2010-02, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
    3. Benjamin Edelman & Michael Ostrovsky & Michael Schwarz, 2007. "Internet Advertising and the Generalized Second-Price Auction: Selling Billions of Dollars Worth of Keywords," American Economic Review, American Economic Association, vol. 97(1), pages 242-259, March.
    4. Simon P. Anderson & Stephen Coate, 2005. "Market Provision of Broadcasting: A Welfare Analysis," Review of Economic Studies, Oxford University Press, vol. 72(4), pages 947-972.
    5. Avi Goldfarb & Catherine Tucker, 2007. "Search Engine Advertising: Pricing Ads to Context," Working Papers 07-23, NET Institute, revised Sep 2007.
    6. Yongmin Chen & Chuan He, 2011. "Paid Placement: Advertising and Search on the Internet," Economic Journal, Royal Economic Society, vol. 121(556), pages 309-328, November.
    7. Jonathan Levin & Paul Milgrom, 2010. "Online Advertising: Heterogeneity and Conflation in Market Design," American Economic Review, American Economic Association, vol. 100(2), pages 603-607, May.
    8. Jorge A, Ferrando & Jean J, Gabszewicz & Didier Laussel & Nathalie Sonnac, 2004. "Two-Sided Network Effects and Competition : An Application to Media Industries," Working Papers 2004-09, Center for Research in Economics and Statistics.
    9. Ganesh Iyer & David Soberman & J. Miguel Villas-Boas, 2005. "The Targeting of Advertising," Marketing Science, INFORMS, vol. 24(3), pages 461-476, May.
    10. Varian, Hal R., 2007. "Position auctions," International Journal of Industrial Organization, Elsevier, vol. 25(6), pages 1163-1178, December.
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    12. Chandra, Ambarish, 2008. "Targeted Advertising: The Role of Subscriber Characteristics in Media Markets," MPRA Paper 7955, University Library of Munich, Germany.
    13. Susan Athey & Joshua S. Gans, 2010. "The Impact of Targeting Technology on Advertising Markets and Media Competition," American Economic Review, American Economic Association, vol. 100(2), pages 608-613, May.
    14. Bagwell, Kyle, 2007. "The Economic Analysis of Advertising," Handbook of Industrial Organization, Elsevier.
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    Citations

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    Cited by:

    1. Larbi Alaoui & Fabrizio Germano, 2012. "Time scarcity and the market for news," Economics Working Papers 1348, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 2014.
    2. James Rutt, 2011. "Aggregators and the News Industry: Charging for Access to Content," Working Papers 11-19, NET Institute, revised Sep 2011.
    3. Dirk Bergemann & Alessandro Bonatti, 2010. "Targeting in Advertising Markets: Implications for Offline vs. Online Media," Cowles Foundation Discussion Papers 1758, Cowles Foundation for Research in Economics, Yale University.
    4. Lindstädt, Nadine & Budzinski, Oliver, 2012. "Newspaper and internet display advertising - co-existence or substitution?," Ilmenau Economics Discussion Papers 74, Ilmenau University of Technology, Institute of Economics.
    5. Emilio Calvano & Bruno Jullien, 2012. "Issues in Online Advertising and Competition Policy: A Two-sided Market Perspective," Chapters,in: Recent Advances in the Analysis of Competition Policy and Regulation, chapter 9 Edward Elgar Publishing.
    6. Dirk Bergemann & Alessandro Bonatti, 2015. "Selling Cookies," American Economic Journal: Microeconomics, American Economic Association, vol. 7(3), pages 259-294, August.
    7. Jonathan Levin, 2011. "The Economics of Internet Markets," Discussion Papers 10-018, Stanford Institute for Economic Policy Research.
    8. Susan Athey & Joshua S. Gans, 2010. "The Impact of Targeting Technology on Advertising Markets and Media Competition," American Economic Review, American Economic Association, vol. 100(2), pages 608-613, May.
    9. Alexandre de Cornière, 2013. "Search Advertising," Economics Series Working Papers 649, University of Oxford, Department of Economics.
    10. Blasco, Andrea & Sobbrio, Francesco, 2012. "Competition and commercial media bias," Telecommunications Policy, Elsevier, vol. 36(5), pages 434-447.
    11. 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.
    12. Avi Goldfarb & Catherine Tucker, 2011. "Search Engine Advertising: Channel Substitution When Pricing Ads to Context," Management Science, INFORMS, vol. 57(3), pages 458-470, March.
    13. Alexandre de Cornière & Romain De Nijs, 2013. "Online Advertising and Privacy," Economics Series Working Papers 650, University of Oxford, Department of Economics.
    14. Blasco, Andrea & Pin, Paolo & Sobbrio, Francesco, 2016. "Paying positive to go negative: Advertisers׳ competition and media reports," European Economic Review, Elsevier, vol. 83(C), pages 243-261.
    15. Avi Goldfarb & Catherine E. Tucker, 2011. "Privacy Regulation and Online Advertising," Management Science, INFORMS, vol. 57(1), pages 57-71, January.
    16. 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.
    17. L. Elisa Celis & Gregory Lewis & Markus Mobius & Hamid Nazerzadeh, 2011. "Buy-it-now or Take-a-chance: A New Pricing Mechanism for Online Advertising," Working Papers 11-21, NET Institute, revised Nov 2011.
    18. Santiago R. Balseiro & Omar Besbes & Gabriel Y. Weintraub, 2012. "Auctions for Online Display Advertising Exchanges: Approximations and Design," Working Papers 12-11, NET Institute.
    19. Eliaz, Kfir & Spiegler, Ran, 2016. "Incentive Compatible Advertising on a Social Network," CEPR Discussion Papers 11223, C.E.P.R. Discussion Papers.

    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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