Advertising, Consumer Awareness, and Choice: Evidence from the U.S. Banking Industry

Abstract

How does advertising influence consumer decisions and market outcomes? We utilize detailed data on consumer shopping behavior and choices over bank accounts to investigate the effects of advertising on the different stages of the shopping process: awareness, consideration, and choice. We formulate a structural model with costly search and endogenous consideration sets, and show that advertising in the U.S. banking industry is primarily a shifter of awareness as opposed to consideration or choice. Advertising makes consumers aware of more options, search more and find better alternatives. This increases the market share of smaller banks and makes the industry more competitive.

Keywords: advertising, banking industry, consumer search, demand estimation

JEL Classification: D43, D83, L13