Targeted advertising, concentration, and consumer welfare

Lynne Pepall and Daniel Richards

Information Economics and Policy, 2025, vol. 70, issue C

Abstract: We develop a model of horizontal differentiation in which firms compete in both price and advertising where the latter adds value to consumption of the advertised product. Targeted advertising means not only that advertising is sent to specific individuals but also that the message content of such advertising is customized. As targeted advertising becomes less costly, market concentration and prices both increase. In equilibria where all consumers receive value-enhancing ads, consumer surplus rises. However, if targeting is incomplete, some consumers will be worse off. In some instances, these losses may be sufficiently large that total consumer surplus declines as well.

Keywords: Market structure; Targeted advertising; Consumer surplus (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:iepoli:v:70:y:2025:i:c:s0167624525000022

DOI: 10.1016/j.infoecopol.2025.101128

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