The informativeness of on-line advertising

Greg Taylor

International Journal of Industrial Organization, 2011, vol. 29, issue 6, 668-677

Abstract: Sending general advertisements with inflationary claims may attract additional visitors with whom an advertiser is poorly matched. This is costly when ads are priced per-click because many visitors (clickers) will not purchase. This renders per-click advertising particularly conducive to the transmission of information via ads. The admissibility of information transmission depends not only on advertiser behaviour, but also upon consumers' interpretation of and trust in ads. In less conducive environments, consumers quickly learn to place little stock in the claims they see advertised. This mechanism undermines the ability of advertisers and consumers to communicate under per-impression or per-sale fee structures. Consumers benefit from increased informativeness, but distortions introduced by the market power given to advertisers imply that society may be better-off with no information transmission taking place.

Keywords: Obfuscation; Advertising; Cheap talk; Performance-based pricing (search for similar items in EconPapers)
JEL-codes: D02 D83 L20 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:29:y:2011:i:6:p:668-677

DOI: 10.1016/j.ijindorg.2011.03.001

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