Targeting in advertising markets: implications for offline versus online media

Authors


  • Bergemann gratefully acknowledges financial support from National Science Foundation grant no. SES 0851200. We wish to thank the coeditor, Mark Armstrong, and three anonymous referees for many suggestions that greatly improved the article. We thank Glenn Ellison, Justin Johnson, Jon Kleinberg, Nancy Lutz, Steven Matthews, Catherine Tucker, Miguel Villas-Boas, Rakesh Vohra, Glen Weyl, and Feng Zhu for helpful comments and discussions. We benefited from discussions at seminars and conferences at Cornell, City University of New York, Federal Trade Commission, Massachusetts Institute of Technology, Northwestern, Rochester, Stanford, University of British Columbia, University College London, and Workshop on Information Systems 2009.

Abstract

We develop a model with many advertisers (products) and many advertising markets (media). Each advertiser sells to a different segment of consumers, and each medium is targeting a different audience. We characterize the competitive equilibrium in the advertising markets and evaluate the implications of targeting. An increase in targeting leads to an increase in the total number of consumer-product matches, and hence in the social value of advertising. Yet, targeting also increases the concentration of firms advertising in each market. Surprisingly, we then find that the equilibrium price of advertisements is first increasing, then decreasing, in the targeting capacity. We trace out the implications of targeting for competing media. We distinguish offline and online media by their targeting ability: low versus high. As consumers’ relative exposure to online media increases, the revenues of offline media decrease, even though the price of advertising might increase.

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