Publication Date: March 2010
We develop a model with many heterogeneous advertisers (products) and advertising markets (media). Each advertiser has a diﬀerent consumer segment for its product, and each medium has a diﬀerent ability to target advertisement messages. We characterize the competitive equilibrium in the media markets and investigate the role of targeting for the price and allocation of advertisements across media markets.
An increase in the targeting ability leads to an increase in the total number of purchases (matches), and hence in the social value of advertisements. Yet, an improved targeting ability also increases the concentration of advertising ﬁrms in each market. Surprisingly, we ﬁnd that the equilibrium price for advertisements is decreasing in the targeting ability over a large range of parameter values.
We trace out the implications of targeting for competing media markets. We distinguish oﬀline and online media by their targeting ability: low versus high. We show that competition by an online medium lowers the revenue of the oﬀline medium more than competition by another oﬀline medium of the same size.
Targeting, Advertising, Online advertising, Sponsored search, Media markets
JEL Classification Codes: D44, D82, D83