A Model of Strategic Targeted Advertising

49 Pages Posted: 3 Jun 2004

See all articles by José L. Moraga-González

José L. Moraga-González

VU University Amsterdam; University of Groningen

Andrea Galeotti

University of Essex

Date Written: May 2004


We study a simultaneous move game of targeted advertising and pricing in a market with various consumer segments. In this setting, we explore the implications of market segmentation on firm competitiveness. If firms are unable to target their ads on different consumer segments, a unique zero-profit equilibrium exists. By contrast, if firms employ targeted advertising, they can obtain positive profits. In equilibrium, firms price very aggressively when they address the most profitable segment, quite gently when they target their ads on the least profitable segment and moderately aggressive when they advertise in the entire market.

Keywords: Segmentation, targeted advertising, oligopoly, price dispersion, price discrimination

JEL Classification: D43, D83

Suggested Citation

Moraga-Gonzalez, Jose Luis and Galeotti, Andrea, A Model of Strategic Targeted Advertising (May 2004). Available at SSRN: https://ssrn.com/abstract=554489

Jose Luis Moraga-Gonzalez (Contact Author)

VU University Amsterdam ( email )

De Boelelaan 1105
1081 HV Amsterdam

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

University of Groningen

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

Andrea Galeotti

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

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