Premium
Targeted advertising and costly consumer search
Author(s) -
Burguet Roberto,
Petrikaitė Vaiva
Publication year - 2023
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.13124
Subject(s) - ranking (information retrieval) , profitability index , advertising , selection (genetic algorithm) , search cost , product (mathematics) , willingness to pay , economics , product differentiation , business , marketing , microeconomics , computer science , geometry , mathematics , finance , machine learning , artificial intelligence , cournot competition
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.