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The Unbundling Of Advertising Agency Services: An Economic Analysis

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Executive Summary

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.

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