Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

A Member of the Law Professor Blogs Network

Friday, August 2, 2013

Competitive Targeted Advertising with Price Discrimination

Posted by D. Daniel Sokol

Rosa Branca Esteves (Universidade do Minho - NIPE) and Joana Resende (Universidade do Porto - FEP) discuss Competitive Targeted Advertising with Price Discrimination.

ABSTRACT: This paper investigates the effects of price discrimination by means of targeted advertising in a duopolistic market in which advertising plays two major roles. It transmits relevant information to otherwise uninformed consumers and it acts as a price discrimination device. We look at the firms' optimal advertising and pricing decisions in two settings, namely mass advertising/non-discrimination strategies and targeted advertising/price discrimination strategies. In the case of targeted advertising, we show that firms advertise more in its weak market than in its strong market. The analysis highlights that targeted advertising might constitute a tool to dampen price competition. We show that average prices with mass advertising/non-discrimination can be below those with targeted advertising/price discrimination (regardless of the market segment). We also find that, when advertising costs are not too high, price discrimination by means of targeted advertising can boost industry profits at the expense of consumer and overall welfare. Finally, we show that overall welfare and consumer surplus falls when firms use targeted advertising instead of mass advertising.

http://lawprofessors.typepad.com/antitrustprof_blog/2013/08/competitive-targeted-advertising-with-price-discrimination-.html

| Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef019104560e1a970c

Listed below are links to weblogs that reference Competitive Targeted Advertising with Price Discrimination :

Comments

Post a comment