Direct advertising and opt-in provisions: Policy and market implications
Lola Esteban and
José M. Hernández
Information Economics and Policy, 2017, vol. 39, issue C, 15-25
This paper formulates a game of pricing and informative advertising with horizontally-differentiated products in which two firms, first, compete with mass advertising and, later, build a database using their historical sales records and compete by targeting the ads to their potential customers. We study market interaction under two types of direct advertising: opt-in advertising, where firms ask consumers for their consent to send them ads with information about new products, and direct advertising without permission, where sellers use consumer contact information without their explicit consent. We show that, compared to the case where firms only use mass media, the use of direct ads (with or without permission) results in an intertemporal reallocation of market power from the first to the second period and that, compared to opt-in advertising, direct advertising without permission results in lower or equal prices. We also evaluate the impact of a regulatory policy aimed at protecting consumer privacy by banning the use of direct advertising without permission in favor of opt-in advertising. We find that this policy lowers social welfare and, if the degree of product differentiation is sufficiently high (vs. low), it does not affect (vs. lowers) firm profits and lowers (vs. increases) consumer surplus.
Keywords: Informative advertising; Opt-in advertising; Nuisance costs; Privacy (search for similar items in EconPapers)
JEL-codes: L13 L59 M37 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:iepoli:v:39:y:2017:i:c:p:15-25
Access Statistics for this article
Information Economics and Policy is currently edited by D. Waterman
More articles in Information Economics and Policy from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().