Friday, April 22, 2011
Posted by D. Daniel Sokol
Alexandre De Cornière (PSE - Paris-Jourdan Sciences Economiques) analyzes Targeted advertising with consumer search: an economic analysis of keywords advertising.
ABSTRACT: This article investigates the role of a search engine as an intermediary between firms and consumers. Search engines enable firms to target consumers who have revealed some specific needs through their query. In a framework with horizontal product differentiation, imperfect product information and in which consumers incur search costs, I show that introducing a "neutral" targeted advertising mechanism reduces social inefficiencies and tends to reduce the equilibrium price. Moreover, the accuracy of the mechanism has a non monotonic effect on the price of the good: the price is lowest when the accuracy is intermediate.