Advertising and the Media

Susanne Kremhelmer and Hans Zenger
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Susanne Kremhelmer: University of Munich
Hans Zenger: University of Munich

Industrial Organization from EconWPA

Abstract: 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.

Keywords: Adverse Selection; Advertising; Media Economics (search for similar items in EconPapers)
JEL-codes: D82 L11 L82 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mic
Date: 2004-03-05
Note: Type of Document - pdf; prepared on WinXP; pages: 35
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpio:0403003

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