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Advertising and the Media


  • Susanne Kremhelmer

    (University of Munich)

  • Hans Zenger

    (University of Munich)


This paper argues that advertising should be regarded as a transaction between a consumer and a firm that potentially generates a mutual benefit. We develop that there exists a problem of adverse selection, however, which makes it impossible to establish direct markets for advertising. The media is viewed as an intermediary that can channel advertising and allocate it efficiently by screening consumers. This screening process may result in excessive prices of media products even in competitive markets, over- or underprovision of advertising, and in an overprovision of media quality for high income consumers (relative to first best levels). If consumer's quality preferences are sufficiently heterogeneous, the first best can be achieved.

Suggested Citation

  • Susanne Kremhelmer & Hans Zenger, 2004. "Advertising and the Media," Industrial Organization 0403003, EconWPA.
  • Handle: RePEc:wpa:wuwpio:0403003
    Note: Type of Document - pdf; prepared on WinXP; pages: 35

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    References listed on IDEAS

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    Cited by:

    1. Kaiser, Ulrich & Song, Minjae, 2009. "Do media consumers really dislike advertising? An empirical assessment of the role of advertising in print media markets," International Journal of Industrial Organization, Elsevier, vol. 27(2), pages 292-301, March.

    More about this item


    Adverse Selection; Advertising; Media Economics;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media

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