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Advertising and the Media

  • Susanne Kremhelmer

    (University of Munich)

  • Hans Zenger

    (University of Munich)

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    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.

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    Paper provided by EconWPA in its series Industrial Organization with number 0403003.

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    Length: 35 pages
    Date of creation: 05 Mar 2004
    Date of revision:
    Handle: RePEc:wpa:wuwpio:0403003
    Note: Type of Document - pdf; prepared on WinXP; pages: 35
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