The Expansion of Varieties in the New Age of Advertising

Salome Baslandze, Jeremy Greenwood, Ricardo Marto and Sara Moreira

No 18470, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: The last decades have seen large improvements in digital advertising technology that allowed firms to target better specific consumer tastes. This research studies the relationship between digital advertising, the rise of varieties, and economic welfare. A model of advertising and varieties is developed, where firms choose the intensity of digital ads directed at specific consumers as well as traditional ads that are undirected. The calibrated model shows that improvements in digital advertising have driven the rise in varieties over time. Empirical evidence is presented using detailed micro data on firms’ products and advertising choices for the 1995-2015 period. Causal analysis using exogenous variation in consumers’ differential access to the internet supports the suggested mechanism.

JEL-codes: E13 I31 L15 M37 O14 O31 (search for similar items in EconPapers)
Date: 2023-09
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Journal Article: The Expansion of Varieties in the New Age of Advertising (2023)
Working Paper: The Expansion of Varieties in the New Age of Advertising (2023)
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