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TARGETED ADVERTISING: THE ROLE OF SUBSCRIBER CHARACTERISTICS IN MEDIA MARKETS

Authors


  • *I am grateful for comments and suggestions from Allan Collard-Wexler, Lapo Filistrucchi, Shane Greenstein, Mike Mazzeo, Aviv Nevo, Rob Porter, Andrew Sweeting, Ken Wilbur, the Editor, two referees and various seminar participants. I acknowledge funds for data acquisition from the Center for the Study of Industrial Organization.

Abstract

This paper seeks to establish the importance of targeted advertising in media markets. Using zip-code level circulation for U.S. newspapers, I show that newspapers facing more competition have lower circulation prices but higher advertising prices than similar newspapers facing little or no competition. I explain this by showing that newspapers in more competitive markets are better able to segment readers according to their location and demographics. This leads to greater homogeneity in the characteristics of subscribers and raises advertisers' willingness to pay for such readers. The results imply a substantial benefit to advertisers and media firms from targeted advertising.

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