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Targeted advertising and costly consumer search

Author

Listed:
  • Roberto Burguet
  • Vaiva Petrikaitė
Abstract
We study targeting of advertising based on information about the consumer's likely ranking of products. Firms send ads to more promising consumers. Thus, targeting increases the expected willingness to pay for the product the consumer learns about but also reduces the expected differentiation of these products. The two effects push search, and so prices, in opposite direction. The first effect is more important for lower search costs. The second is stronger the larger the number of products. The improved selection under targeting increases firms' profitability and so advertising effort.

Suggested Citation

  • Roberto Burguet & Vaiva Petrikaitė, 2023. "Targeted advertising and costly consumer search," Economic Inquiry, Western Economic Association International, vol. 61(2), pages 430-450, April.
    • Handle: RePEc:bla:ecinqu:v:61:y:2023:i:2:p:430-450
    DOI: 10.1111/ecin.13124
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    2. Gregor Langus & Vilen Lipatov, 2022. "Value Creation by Ad-Funded Platforms," CESifo Working Paper Series 9525, CESifo.

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    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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