Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_1196.html
   My bibliography  Save this paper

A Model of Strategic Targeted Advertising

Author

Listed:
  • Andrea Galeotti
  • José Luis Moraga-González
Abstract
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.

Suggested Citation

  • Andrea Galeotti & José Luis Moraga-González, 2004. "A Model of Strategic Targeted Advertising," CESifo Working Paper Series 1196, CESifo.
    • Handle: RePEc:ces:ceswps:_1196
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp1196.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Bester, Helmut & Petrakis, Emmanuel, 1995. "Price competition and advertising in oligopoly," European Economic Review, Elsevier, vol. 39(6), pages 1075-1088, June.
    2. Stegeman, Mark, 1991. "Advertising in Competitive Markets," American Economic Review, American Economic Association, vol. 81(1), pages 210-223, March.
    3. Ganesh Iyer & David Soberman & J. Miguel Villas-Boas, 2005. "The Targeting of Advertising," Marketing Science, INFORMS, vol. 24(3), pages 461-476, May.
    4. Thisse, Jacques-Francois & Vives, Xavier, 1988. "On the Strategic Choice of Spatial Price Policy," American Economic Review, American Economic Association, vol. 78(1), pages 122-137, March.
    5. Lola Esteban & Agustín Gil & Jose M. Hernández, 2001. "Informative Advertising and Optimal Targeting in a Monopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 49(2), pages 161-180, June.
    6. Stahl II Dale O., 1994. "Oligopolistic Pricing and Advertising," Journal of Economic Theory, Elsevier, vol. 64(1), pages 162-177, October.
    7. repec:bla:jindec:v:49:y:2001:i:2:p:161-80 is not listed on IDEAS
    8. Gene M. Grossman & Carl Shapiro, 1984. "Informative Advertising with Differentiated Products," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(1), pages 63-81.
    9. Armstrong, Mark & Vickers, John, 2001. "Competitive Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 579-605, Winter.
    10. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-1150, September.
    11. Roy, Santanu, 2000. "Strategic segmentation of a market," International Journal of Industrial Organization, Elsevier, vol. 18(8), pages 1279-1290, December.
    12. Holmes, Thomas J, 1989. "The Effects of Third-Degree Price Discrimination in Oligopoly," American Economic Review, American Economic Association, vol. 79(1), pages 244-250, March.
    13. Rosenthal, Robert W, 1980. "A Model in Which an Increase in the Number of Sellers Leads to a Higher Price," Econometrica, Econometric Society, vol. 48(6), pages 1575-1579, September.
    14. Gerard R. Butters, 1977. "Equilibrium Distributions of Sales and Advertising Prices," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(3), pages 465-491.
    15. Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 34, pages 2221-2299, Elsevier.
    16. Sharkey, William W. & Sibley, David S., 1993. "A Bertrand model of pricing and entry," Economics Letters, Elsevier, vol. 41(2), pages 199-206.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Galeotti, Andrea & Moraga-González, José Luis, 2008. "Segmentation, advertising and prices," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1106-1119, September.
    2. Lola Esteban & José M. Hernández & José Luis Moraga‐González, 2006. "Customer Directed Advertising and Product Quality," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(4), pages 943-968, December.
    3. Simon Anderson & Alicia Baik & Nathan Larson, 2023. "Price Discrimination in the Information Age: Prices, Poaching, and Privacy with Personalized Targeted Discounts," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(5), pages 2085-2115.
    4. Esteves, Rosa-Branca & Resende, Joana, 2019. "Personalized pricing and advertising: Who are the winners?," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 239-282.
    5. Nada Ben Elhadj-Ben Brahim & Rim Lahmandi-Ayed & Didier Laussel, 2014. "Is Targeted Advertising always Beneficial?," World Scientific Book Chapters, in: Kaddour Hadri & William Mikhail (ed.), Econometric Methods and Their Applications in Finance, Macro and Related Fields, chapter 20, pages 551-585, World Scientific Publishing Co. Pte. Ltd..
    6. Lola Esteban & José Hernández, 2014. "Endogenous direct advertising and price competition," Journal of Economics, Springer, vol. 112(3), pages 225-251, July.
    7. Rosa Branca Esteves, 2009. "Customer Poaching And Advertising," Journal of Industrial Economics, Wiley Blackwell, vol. 57(1), pages 112-146, March.
    8. Ganesh Iyer & David Soberman & J. Miguel Villas-Boas, 2005. "The Targeting of Advertising," Marketing Science, INFORMS, vol. 24(3), pages 461-476, May.
    9. Esteban, Lola & Hernández, José M., 2017. "Direct advertising and opt-in provisions: Policy and market implications," Information Economics and Policy, Elsevier, vol. 39(C), pages 15-25.
    10. Sridhar Moorthy & Shervin Shahrokhi Tehrani, 2023. "Targeting Advertising Spending and Price on the Hotelling Line," Marketing Science, INFORMS, vol. 42(6), pages 1057-1079, November.
    11. Lola Esteban & José Hernández, 2011. "Specialized advertising and price competition in vertically differentiated markets," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 2(2), pages 255-282, June.
    12. Soberman, David A. & Xiang, Yi, 2022. "Designing the content of advertising in a differentiated market," International Journal of Research in Marketing, Elsevier, vol. 39(1), pages 190-211.
    13. Zhao Jiang & Wu Dan & Liu Jie, 2020. "Distinct role of targeting precision of Internet-based targeted advertising in duopolistic e-business firms’ heterogeneous consumers market," Electronic Commerce Research, Springer, vol. 20(2), pages 453-474, June.
    14. Christou, C. & Vettas, N., 2008. "On informative advertising and product differentiation," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 92-112, January.
    15. Lola Esteban & José M. Hernández, 2017. "Perfect versus imperfect direct advertising, and market performance," Journal of Economics, Springer, vol. 122(1), pages 1-27, September.
    16. Immordino Giovanni, 2009. "Advertising and Cost Reduction," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-15, April.
    17. Anderson, Simon & Baik, Alicia & Larson, Nathan, 2015. "Personalized pricing and advertising: An asymmetric equilibrium analysis," Games and Economic Behavior, Elsevier, vol. 92(C), pages 53-73.
    18. Michael R. Baye & John Morgan, 2009. "Brand and Price Advertising in Online Markets," Management Science, INFORMS, vol. 55(7), pages 1139-1151, July.
    19. Il-Horn Hann & Kai-Lung Hui & Sang-Yong Tom Lee & Ivan P.L. Png, 2005. "Sales and Promotions: A More General Model," Industrial Organization 0508014, University Library of Munich, Germany.
    20. Rauch, Ferdinand, 2013. "Advertising expenditure and consumer prices," International Journal of Industrial Organization, Elsevier, vol. 31(4), pages 331-341.

    More about this item

    Keywords

    segmentation; targeted advertising; oligopoly; price dispersion; price discrimination;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_1196. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.