The Welfare Impact of Targeted Advertising

38 Pages Posted: 14 Apr 2017 Last revised: 2 May 2018

See all articles by Veronica Marotta

Veronica Marotta

University of Minnesota - Twin Cities - Carlson School of Management

Kaifu Zhang

INSEAD

Alessandro Acquisti

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management

Date Written: January 11, 2017

Abstract

We analyze how alternative consumer data handling regimes affect the welfare of consumers, advertising firms, and an intermediary Ad exchange in the context of targeted advertising. We find that the collection and use of consumer data for targeting purposes affect consumer welfare through three distinct, and possibly countervailing, effects: match improvement, offer discrimination, and supply expansion. Furthermore, we find that the economic interests of the three agents can be misaligned, depending on the degree of heterogeneity in consumer preferences. Finally, we find that a strategic intermediary may choose to share with advertising firms only a subset of consumer data, maximizing its profits at their cost. In situations where the intermediary has an incentive to reveal the information that maximizes its payoff, overlooking the other agents’ interests, regulation of data collection and sharing may increase consumers’ welfare.

Keywords: Informational Privacy, Targeted Advertising

JEL Classification: M37, D18

Suggested Citation

Marotta, Veronica and Zhang, Kaifu and Acquisti, Alessandro, The Welfare Impact of Targeted Advertising (January 11, 2017). Available at SSRN: https://ssrn.com/abstract=2951322 or http://dx.doi.org/10.2139/ssrn.2951322

Veronica Marotta (Contact Author)

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

Kaifu Zhang

INSEAD ( email )

Boulevard de Constance
77305 Fontainebleau Cedex
France

Alessandro Acquisti

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management ( email )

Pittsburgh, PA 15213-3890
United States
412-268-9853 (Phone)
412-268-5339 (Fax)

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