Targeting in Advertising Markets: Implications for Offline vs. Online Media

Dirk Bergemann and Alessandro Bonatti

No 1758, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We develop a model with many heterogeneous advertisers (products) and advertising markets (media). Each advertiser has a different consumer segment for its product, and each medium has a different ability to target advertisement messages. We characterize the competitive equilibrium in the media markets and investigate the role of targeting for the price and allocation of advertisements across media markets. An increase in the targeting ability leads to an increase in the total number of purchases (matches), and hence in the social value of advertisements. Yet, an improved targeting ability also increases the concentration of advertising firms in each market. Surprisingly, we find that the equilibrium price for advertisements is decreasing in the targeting ability over a large range of parameter values. We trace out the implications of targeting for competing media markets. We distinguish offline and online media by their targeting ability: low versus high. We show that competition by an online medium lowers the revenue of the offline medium more than competition by another offline medium of the same size.

Keywords: Targeting; Advertising; Online advertising; Sponsored search; Media markets (search for similar items in EconPapers)
JEL-codes: D44 D82 D83 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2010-03
New Economics Papers: this item is included in nep-com, nep-cul, nep-mic and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Related works:
Working Paper: Targeting in Advertising Markets: Implications for Offline vs. Online Media (2010)
Working Paper: Targeting in Advertising Markets: Implications for Offline vs. Online Media (2010)
Working Paper: Targeting in Advertising Markets: Implications for Offline vs. Online Media (2010)
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