Date Added: Mar 2010
The authors 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. They 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, they find that the equilibrium price for advertisements is decreasing in the targeting ability over a large range of parameter values.