Targeted Advertising and Costly Consumer Search

Vaiva Petrikaite and Roberto Burguet

No 971, Working Papers from Barcelona School of Economics

Abstract: We study a model of advertising targeting based on information about the consumer's likely ranking of products. With horizontally differentiated goods and costly search, ads then convey to consumers a noisy, positive signal of their unknown willingness to pay for the firms' products. That implies a higher expected willingness to pay for a yet not sampled firm, which increases the incentives to search, but also a lower expected differentiation of the products that the consumers learn about, which reduces the incentives to search. The first effect is more important for lower search costs, and the second for larger number of products. Also, the equilibrium intensity of advertising will affect the precision of consumers' information. Larger marginal cost of advertising results in larger endogenous segmentation and larger prices.

Keywords: random advertising; targeted advertising; horizontal differentiation; sequential search (search for similar items in EconPapers)
JEL-codes: D83 L13 (search for similar items in EconPapers)
Date: 2017-06
New Economics Papers: this item is included in nep-com, nep-ind, nep-mic and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://bw.bse.eu/wp-content/uploads/2017/06/971-file.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:971

Access Statistics for this paper

More papers in Working Papers from Barcelona School of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Bruno Guallar ().