Targeting in Advertising Markets: Implications for Offline vs. Online Media
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We develop a model with many advertisers (products) and many advertising markets (media). Each advertiser sells to a diﬀerent segment of consumers, and each medium has a diﬀerent ability to target advertising messages. We characterize the competitive equilibrium in the media markets and evaluate the implications of targeting in advertising 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 advertising. Yet, an improved targeting ability also increases the concentration of ﬁrms advertising in each market. Surprisingly, we then ﬁnd that the equilibrium price of advertisements is ﬁrst increasing, then decreasing in the targeting ability. We trace out the implications of targeting for competing media. We distinguish oﬀline and online media by their targeting ability: low versus high. As consumers, relative exposure to online media increases, the revenues of oﬀline media decrease, even though the price of advertising might increase.
Bergemann, Dirk and Bonatti, Alessandro, "Targeting in Advertising Markets: Implications for Offline vs. Online Media" (2010). Cowles Foundation Discussion Papers. 2088.