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

  • Dirk Bergemann
  • Alessandro Bonatti

We develop a model with many advertisers (products) and many advertising markets (media). Each advertiser sells to a different segment of consumers, and each medium has a different ability to target advertising messages. We characterize the competitive equilibrium in the media markets and evaluate the implications of targeting in advertising 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 advertising. Yet, an improved targeting ability also increases the concentration of firms advertising in each market. Surprisingly, we then find that the equilibrium price of advertisements is first increasing, then decreasing in the targeting ability. We trace out the implications of targeting for competing media. We distinguish offline and online media by their targeting ability: low versus high. As consumers, relative exposure to online media increases, the revenues of offline media decrease, even though the price of advertising might increase.

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Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 661465000000000284.

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Date of creation: 22 Oct 2010
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Handle: RePEc:cla:levarc:661465000000000284
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  1. Benjamin Edelman & Michael Ostrovsky & Michael Schwarz, 2005. "Internet Advertising and the Generalized Second Price Auction: Selling Billions of Dollars Worth of Keywords," NBER Working Papers 11765, National Bureau of Economic Research, Inc.
  2. Dirk Bergemann & Alessandro Bonatti, 2010. "Targeting in Advertising Markets: Implications for Offline vs. Online Media," Cowles Foundation Discussion Papers 1758R, Cowles Foundation for Research in Economics, Yale University, revised Aug 2010.
  3. Yongmin Chen & Chuan He, 2006. "Paid Placement: Advertising and Search on the Internet," Working Papers 06-02, NET Institute, revised Sep 2006.
  4. Chandra, Ambarish, 2008. "Targeted Advertising: The Role of Subscriber Characteristics in Media Markets," MPRA Paper 7955, University Library of Munich, Germany.
  5. Bagwell, Kyle, 2007. "The Economic Analysis of Advertising," Handbook of Industrial Organization, Elsevier.
  6. Jonathan Levin & Paul Milgrom, 2010. "Online Advertising: Heterogeneity and Conflation in Market Design," American Economic Review, American Economic Association, vol. 100(2), pages 603-07, May.
  7. David P. Myatt & Justin P. Johnson, 2004. "On the Simple Economics of Advertising, Marketing, and Product Design," Economics Series Working Papers 185, University of Oxford, Department of Economics.
  8. Simon P. Anderson & Stephen Coate, 2003. "Market Provision of Broadcasting: A Welfare Analysis," Virginia Economics Online Papers 358, University of Virginia, Department of Economics.
  9. Avi Goldfarb & Catherine Tucker, 2007. "Search Engine Advertising: Pricing Ads to Context," Working Papers 07-23, NET Institute, revised Sep 2007.
  10. 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 608-13, May.
  11. Varian, Hal R., 2007. "Position auctions," International Journal of Industrial Organization, Elsevier, vol. 25(6), pages 1163-1178, December.
  12. 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.
  13. Ganesh Iyer & David Soberman & J. Miguel Villas-Boas, 2005. "The Targeting of Advertising," Marketing Science, INFORMS, vol. 24(3), pages 461-476, May.
  14. 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, Centre de Recherche en Economie et Statistique.
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