Abstract
The last decades have seen large improvements in digital advertising technology that allowed firms to target better specific consumer tastes. This research studies the relationship between digital advertising, the rise of varieties, and economic welfare. A model of advertising and varieties is developed, where firms choose the intensity of digital ads directed at specific consumers as well as traditional ads that are undirected. The calibrated model shows that improvements in digital advertising have driven the rise in varieties over time. Empirical evidence is presented using detailed micro data on firms' products and advertising choices since 1995. Causal analysis using exogenous variation in consumers' differential access to the internet supports the suggested mechanism.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 171-210 |
| Number of pages | 40 |
| Journal | Review of Economic Dynamics |
| Volume | 50 |
| DOIs | |
| State | Published - Oct 2023 |
Funding
We are grateful to Tom Hubbard, Ben F. Jones, Joseph Vavra, Galina Vereshchagina, and participants at seminars and conferences for their feedback. We thank a referee for comments and suggestions. We would also like to thank Andrew Ahn, Kai Xiao (Sean) Chen, and Jiawei (Charon) Yang for excellent research assistance. Researcher(s)' own analyses calculated (or derived) based in part on data from Nielsen Consumer LLC and marketing databases provided through the NielsenIQ Datasets at the Kilts Center for Marketing Data Center at The University of Chicago Booth School of Business. The conclusions drawn from the NielsenIQ data are those of the researcher(s) and do not reflect the views of NielsenIQ. NielsenIQ is not responsible for, had no role in, and was not involved in analyzing and preparing the results reported herein. The views expressed here are those of the authors and do not necessarily reflect those of the Federal Reserve Bank of Atlanta, the Federal Reserve Bank of St. Louis, and the Federal Reserve System. This research was supported by the National Science Foundation (grant number 2044117 ). We are grateful to Tom Hubbard, Ben F. Jones, Joseph Vavra, Galina Vereshchagina, and participants at seminars and conferences for their feedback. We thank a referee for comments and suggestions. We would also like to thank Andrew Ahn, Kai Xiao (Sean) Chen, and Jiawei (Charon) Yang for excellent research assistance. Researcher(s)' own analyses calculated (or derived) based in part on data from Nielsen Consumer LLC and marketing databases provided through the NielsenIQ Datasets at the Kilts Center for Marketing Data Center at The University of Chicago Booth School of Business. The conclusions drawn from the NielsenIQ data are those of the researcher(s) and do not reflect the views of NielsenIQ. NielsenIQ is not responsible for, had no role in, and was not involved in analyzing and preparing the results reported herein. The views expressed here are those of the authors and do not necessarily reflect those of the Federal Reserve Bank of Atlanta, the Federal Reserve Bank of St. Louis, and the Federal Reserve System. This research was supported by the National Science Foundation (grant number 2044117).
Keywords
- Digital (directed) advertising
- Internet
- Specialization
- Targeting
- Traditional (undirected) advertising
- Varieties
ASJC Scopus subject areas
- Economics and Econometrics
