The Informativeness of On-Line Advertising

Posted: 30 May 2009 Last revised: 23 Mar 2012

See all articles by Greg Taylor

Greg Taylor

University of Oxford - Oxford Internet Institute

Date Written: May 29, 2009

Abstract

Sending general advertisements with inflationary claims may attract additional visitors with whom an advertiser is poorly matched. This is costly when ads are priced per-click because many visitors (clickers) will not purchase. This renders per-click advertising particularly conducive to the transmission of information via ads. The admissibility of information transmission depends not only on advertiser behaviour, but also upon consumers' interpretation of and trust in ads. In less conducive environments, consumers quickly learn to place little stock in the claims they see advertised. This mechanism undermines the ability of advertisers and consumers to communicate under per-impression or per-sale fee structures. Consumers benefit from increased informativeness, but distortions introduced by the market power given to advertisers imply that society may be better-off with no information transmission taking place.

Keywords: advertising, obfuscation, search, pay-per-click, pay-per-sale, sponsored search,cheap talk

JEL Classification: L15, D02, D83

Suggested Citation

Taylor, Greg, The Informativeness of On-Line Advertising (May 29, 2009). International Journal of Industrial Organization, Vol. 29, No. 6, 2011. Available at SSRN: https://ssrn.com/abstract=1411786 or http://dx.doi.org/10.2139/ssrn.1411786

Greg Taylor (Contact Author)

University of Oxford - Oxford Internet Institute ( email )

1 St. Giles
University of Oxford
Oxford OX1 3PG Oxfordshire, Oxfordshire OX1 3JS
United Kingdom

HOME PAGE: http://www.greg-taylor.co.uk

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