Working Paper: CEPR ID: DP7988
Authors: Dirk Bergemann; Alessandro Bonatti
Abstract: 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.
Keywords: advertising; internet advertising; media markets; sponsored search; targeting
JEL Codes: D44; D82; D83
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| targeting ability (C52) | total number of purchases (C69) |
| targeting ability (C52) | social value of advertising (M37) |
| targeting ability (C52) | concentration of firms advertising (L19) |
| concentration of firms advertising (L19) | equilibrium price of advertisements (D41) |
| targeting ability (C52) | equilibrium price of advertisements (D41) |