Advertising, the Matchmaker

54 Pages Posted: 2 Jan 2002

See all articles by Bharat N. Anand

Bharat N. Anand

Harvard University - Strategy Unit

Ron Shachar

Interdisciplinary Center (IDC) Herzliyah - Adelson School of Entrepreneuship

Date Written: December 2004

Abstract

This study models advertising content as a noisy signal on product attributes. Contrary to previous empirical studies that modeled advertising only as part of the consumer's utility function, we formulate advertising also as an element in her information set. This approach yields the following implications. First, in some cases, exposure to advertising decreases the consumer's tendency to purchase the promoted product. Second, exposure to advertising improves the matching of consumers and products. These implications enable the researcher to distinguish between the effect of advertising on utility and its effect through the information set using individual-level data on both consumption and advertising exposures. Using a dataset that was designed and created to test this model and its implications, we show that the theory is supported empirically. The structural estimates imply that an exposure to a single advertisement decreases the consumer's probability of not choosing her best alternative by at least 16%.

Keywords: Advertising, Structural estimation, Information

Suggested Citation

Anand, Bharat N. and Shachar, Roni, Advertising, the Matchmaker (December 2004). Harvard Business School Strategy Unit Research Paper No. 264206. Available at SSRN: https://ssrn.com/abstract=264206 or http://dx.doi.org/10.2139/ssrn.264206

Bharat N. Anand (Contact Author)

Harvard University - Strategy Unit ( email )

Harvard Business School
Soldiers Field Road
Boston, MA 02163
United States
617 495-5082 (Phone)
617 495-0355 (Fax)

Roni Shachar

Interdisciplinary Center (IDC) Herzliyah - Adelson School of Entrepreneuship ( email )

P.O. Box 167
Herzliya, 46150
Israel

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