Digital Advertising and Market Structure: Implications for Privacy Regulation

Daniel Deisenroth, Utsav Manjeer, Zarak Sohail, Steven Tadelis and Nils Wernerfelt

No 32726, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Digital advertising, which uses consumer data to target ads to users, now accounts for most of global ad expenditures. Privacy concerns have prompted regulations that restrict the use of personal data. To inform these policy debates, we develop an equilibrium model of advertising and market structure to analyze the impact of privacy regulation on market outcomes. We test the model’s predictions using the launch of Apple’s App Tracking Transparency feature, which created a natural experiment that limited the use of consumer data. Leveraging data from all U.S. advertisers on Meta combined with offline administrative data, we find that reductions in digital ad effectiveness led to decreases in investments in advertising, increases in market concentration, and increases in product prices. These effects are economically meaningful in magnitude and suggest potential harms to both firms and consumers from privacy regulation.

JEL-codes: D22 D40 L10 L59 M38 (search for similar items in EconPapers)
Date: 2024-07
New Economics Papers: this item is included in nep-com, nep-ind, nep-pay and nep-reg
Note: IO PR
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