50 Pages Posted: 4 Nov 2013
Date Written: November 4, 2013
We analyze data pricing and targeted advertising. Advertisers seek to tailor their spending to the value of each consumer. A monopolistic data provider sells cookies -- informative signals about individual consumers' preferences. We characterize the set of consumers targeted by the advertisers and the optimal monopoly price of cookies. The ability to influence the composition of the targeted set provides incentives to lower prices. Thus, the price of data decreases with the reach of the database and increases with the fragmentation of data sales. We characterize the optimal policy for selling information and its implementation through nonlinear pricing of cookies.
Keywords: Data providers, Information sales, Targeting, Online advertising, Media markets
JEL Classification: D44, D82, D83
Suggested Citation: Suggested Citation