Optimal targeting with entry

Research output: Contribution to journalArticle

Abstract

We study an advertising agency's optimal choice of targeting technology with endogenous market structure, namely, when targeting changes firms' entry strategies into the advertising and product market. We show that the advertising agency faces a trade‐off between demand‐expansion and profit‐dissipation: The former arises as targeting induces more entry and increases the demand for advertising; the latter refers to that targeting relaxes competition by inducing more differentiation. We show that perfect targeting is not optimal for the advertising agency. Compared to social optimum, the advertising agency underinvests in targeting when investment cost is low and overinvests when targeting is costly.
Original languageEnglish
Pages (from-to)285-296
JournalManagerial and Decision Economics
Volume39
Issue number3
Early online date14 Nov 2017
DOIs
Publication statusPublished - 1 Mar 2018

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