Sparking Curiosity or Tipping the Scales? Targeted Advertising with Consumer Learning

44 Pages Posted: 30 Jun 2021 Last revised: 21 Jul 2023

See all articles by Andrei Matveenko

Andrei Matveenko

University of Mannheim - Department of Economics

Egor Starkov

University of Copenhagen - Department of Economics

Date Written: July 21, 2023

Abstract

This paper argues, in the context of targeted advertising, that receivers' rational inattention and ability to independently acquire information have a non-trivial impact on the sender's optimal disclosure strategy. In our model, a monopolist has an opportunity to launch an advertising campaign and chooses a targeting strategy -- which consumers to send its advertisement to. The consumers are uncertain about and heterogeneous in their valuations of the product, and are rationally inattentive in that they must incur a cost if they want to learn their true valuations. We discover that the firm generally prefers to target consumers who are either indifferent between ignoring and investigating the product, or between investigating and buying it unconditionally. If the firm is uncertain about the consumer appeal of its product, it targets these two distinct groups of consumers simultaneously but may ignore all consumers in between.

Keywords: advertising, targeting, rational inattention, costly disclosure

JEL Classification: D83, L15, M37

Suggested Citation

Matveenko, Andrei and Starkov, Egor, Sparking Curiosity or Tipping the Scales? Targeted Advertising with Consumer Learning (July 21, 2023). Journal of Economic Behavior and Organization, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3869568 or http://dx.doi.org/10.2139/ssrn.3869568

Andrei Matveenko (Contact Author)

University of Mannheim - Department of Economics ( email )

D-68131 Mannheim
Germany

Egor Starkov

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5, Bygn 26
Copenhagen, 1353
Denmark

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