Strategic Targeted Advertising

Tinbergen Institute Discussion Paper No. 03-035/1

37 Pages Posted: 21 Jul 2003

See all articles by Andrea Galeotti

Andrea Galeotti

University of Essex

José L. Moraga-González

VU University Amsterdam; University of Groningen

Date Written: May 10, 2003

Abstract

We present a strategic game of pricing and targeted-advertising. Firms can simultaneously target price advertisements to different groups of customers, or to the entire market. Pure strategy equilibria do not exist and thus market segmentation cannot occur surely. Equilibria exhibit random advertising - to induce an unequal distribution of information in the market - and random pricing - to obtain profits from badly informed buyers. We characterize a positive profits equilibrium where firms advertise low prices to a segment of consumers, high prices to a distinct segment of consumers, and intermediate prices to the entire market. As a result the market is segmented only from time to time and presents substantial price dispersion across segments.

JEL Classification: D43, D83

Suggested Citation

Galeotti, Andrea and Moraga-Gonzalez, Jose Luis, Strategic Targeted Advertising (May 10, 2003). Tinbergen Institute Discussion Paper No. 03-035/1, Available at SSRN: https://ssrn.com/abstract=407300 or http://dx.doi.org/10.2139/ssrn.407300

Andrea Galeotti (Contact Author)

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Jose Luis Moraga-Gonzalez

VU University Amsterdam ( email )

De Boelelaan 1105
1081 HV Amsterdam
Netherlands

HOME PAGE: http://www.tinbergen.nl/~moraga/

University of Groningen

P.O. Box 800
9700 AV Groningen, Groningen 9700 AV
Netherlands

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