Tech Industry

The Unbundling Of Advertising Agency Services: An Economic Analysis

Date Added: Sep 2010
Format: PDF

The author addresses a longstanding puzzle surrounding the unbundling of services occurring over several decades in the U.S. advertising agency industry: What accounts for the shift from bundling to unbundling of services and the slow pace of change? Using Evans and Salinger's cost-based theory of bundling, the authors develop a simple model of an agency's decision to unbundle as a tradeoff between the fixed cost to the advertiser of establishing a relationship with an agency and pecuniary economies of scale available from providing media services.