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

49 Pages Posted: 19 Aug 2010

See all articles by Dirk Bergemann

Dirk Bergemann

Yale University - Cowles Foundation - Department of Economics; Yale University - Cowles Foundation

Alessandro Bonatti

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Multiple version iconThere are 3 versions of this paper

Date Written: August 19, 2010

Abstract

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.

Keywords: Targeting, Advertising, Online Advertising, Sponsored Search, Media Markets

JEL Classification: D44, D82, D83

Suggested Citation

Bergemann, Dirk and Bonatti, Alessandro, Targeting in Advertising Markets: Implications for Offline vs. Online Media (August 19, 2010). Cowles Foundation Discussion Paper No. 1758R. Available at SSRN: https://ssrn.com/abstract=1661831 or http://dx.doi.org/10.2139/ssrn.1661831

Dirk Bergemann (Contact Author)

Yale University - Cowles Foundation - Department of Economics ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States
203-432-3592 (Phone)
203-432-2128 (Fax)

HOME PAGE: http://www.econ.yale.edu/~dirk/

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

Alessandro Bonatti

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

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