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The Expansion of Varieties in the New Age of Advertising

Author

Listed:
  • Salome Baslandze

    (Federal Reserve Bank of Atlanta)

  • Jeremy Greenwood

    (University of Pennsylvania)

  • Ricardo Marto

    (Federal Reserve Bank of St. Louis)

  • Sara Moreira

    (Northwestern University)

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 for the 1995-2015 period. Causal analysis using exogenous variation in consumers' differential access to the internet supports the suggested mechanism. (Copyright: Elsevier)

Suggested Citation

  • Salome Baslandze & Jeremy Greenwood & Ricardo Marto & Sara Moreira, 2023. "The Expansion of Varieties in the New Age of Advertising," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 50, pages 171-210, October.
    • Handle: RePEc:red:issued:23-146
    DOI: 10.1016/j.red.2023.07.008
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    Cited by:

    1. Mathilde Aubouin & Lionel Ragot, 2024. "The Macroeconomics of Free Digital Services," Working Papers hal-04616676, HAL.
    2. Guy Aridor & Rafael Jiménez-Durán & Ro'ee Levy & Lena Song, 2024. "The Economics of Social Media," Journal of Economic Literature, American Economic Association, vol. 62(4), pages 1422-1474, December.
    3. Guy Aridor & Yeon-Koo Che & Brett Hollenbeck & Maximilian Kaiser & Daniel McCarthy, 2024. "Evaluating the Impact of Privacy Regulation on E-Commerce Firms: Evidence from Apple’s App Tracking Transparency," CESifo Working Paper Series 10928, CESifo.
    4. Salomé Baslandze & Leo Liu & Elvira Sojli & Wing Wah Tham, 2025. "Foundational Processes and Growth," FRB Atlanta Working Paper 2025-01, Federal Reserve Bank of Atlanta.
    5. Cong, Lin William & Li, Siguang, 2024. "Influencer marketing and product competition," Journal of Economic Theory, Elsevier, vol. 220(C).

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    More about this item

    Keywords

    Digital (directed) advertising; Traditional (undirected) advertising; Specialization; Targeting; Internet; Varieties; Welfare;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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