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Are Online and Offline Advertising Substitutes or Complements? Evidence from U.S. Food Industries

Author

Listed:
  • He Xi

    (Department of Agricultural and Resource Economics, University of Connecticut-Storrs, 1376 Storrs Rd, CT, 06268 Storrs, USA)

  • Lopez Rigoberto

    (Department of Agricultural and Resource Economics, University of Connecticut-Storrs, 1376 Storrs Rd, CT, 06268 Storrs, USA)

  • Liu Yizao

    (Department of Agricultural Economics, Sociology, and Education, Pennsylvania State University, University Park, PA, USA)

Abstract

This article investigates the substitution between online advertising (ONLA) and offline advertising (OFFLA) as well as the impact of adopting ONLA on the total cost of advertising. We estimate an advertising translog cost function at the product-brand level, using monthly observations between 2005 and 2011 for each of three industries: beer, ready-to-eat cereals, and carbonated soft drinks. Although in all three industries we find that traditional media (TV and print) advertisements are close substitutes, we also find that ONLA is a complement to, rather than a substitute for, both TV and print media advertising. This may be explained by ONLA’s targeting younger market segments and acting as a reinforcement of TV and print media advertising exposure. Further results show that the adoption of ONLA has lowered the cost of advertising for achieving a sales target and that its complementarity effect is weakening over time.

Suggested Citation

  • He Xi & Lopez Rigoberto & Liu Yizao, 2017. "Are Online and Offline Advertising Substitutes or Complements? Evidence from U.S. Food Industries," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 15(2), pages 1-10, December.
    • Handle: RePEc:bpj:bjafio:v:15:y:2017:i:2:p:10:n:1
    DOI: 10.1515/jafio-2017-0031
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    References listed on IDEAS

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    More about this item

    Keywords

    advertising; online; food; cost; substitution;
    All these keywords.

    JEL classification:

    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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