‘You Will:’ A Macroeconomic Analysis of Digital Advertising

Jeremy Greenwood, Yueyuan Ma and Mehmet Yorukoglu

No 28537, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: An information-based model is developed where traditional and digital advertising finance the provision of free media goods and affect price competition. Digital advertising is directed toward consumers while traditional advertising is undirected. The equilibrium is suboptimal. Media goods are under provided with both types of advertising. Additionally, traditional advertising is excessive because it is undirected. The tax-cum-subsidy policy that overcomes these inefficiencies is characterized. The model is calibrated to the U.S. economy. Digital advertising increases welfare significantly and is disproportionately financed by better-off consumers. The welfare gain from the optimal policy is much smaller than the gain from digital advertising.

JEL-codes: E1 L1 O3 (search for similar items in EconPapers)
Date: 2021-03
New Economics Papers: this item is included in nep-ind and nep-mac
Note: EFG
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Citations: View citations in EconPapers (2)

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Working Paper: `You Will:' A Macroeconomic Analysis of Digital Advertising (2020)
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