Working Paper: CEPR ID: DP18470
Authors: Salom Baslandze; Jeremy Greenwood; Ricardo Marto; Sara Moreira
Abstract: The last decades have seen large improvements in digital advertising technology that allowed firms to target better specific consumer tastes. This research studies the relationship between digital advertising, the rise of varieties, and economic welfare. A model of advertising and varieties is developed, where firms choose the intensity of digital ads directed at specific consumers as well as traditional ads that are undirected. The calibrated model shows that improvements in digital advertising have driven the rise in varieties over time. Empirical evidence is presented using detailed micro data on firms’ products and advertising choices for the 1995-2015 period. Causal analysis using exogenous variation in consumers’ differential access to the internet supports the suggested mechanism.
Keywords: digital advertising; traditional advertising; specialization; targeting; internet; varieties; welfare
JEL Codes: E13; L15; I31; M37; O14; O31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| digital advertising technology improvements (O33) | better consumer targeting (D16) |
| better consumer targeting (D16) | rise in varieties (Y90) |
| digital advertising (M37) | increase in total varieties (C43) |
| process innovations (O31) | increase in total varieties (C43) |
| lightning strikes (Y60) | households' internet access (D19) |
| households' internet access (D19) | number of varieties (C35) |