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Flexible Demand Manipulation

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  • Yifan Dai
  • Andrew Koh

Abstract

We develop a simple framework to analyze how targeted advertising interacts with market power. A designer chooses an advertising plan which allows it to flexibly manipulate the demand curve at some cost. A monopolist prices against this manipulated demand curve. We fully characterize the form and value of producer-optimal and consumer-optimal advertising plans under both ex-ante and ex-post measures of welfare. Flexibility is double-edged: producer-optimal plans substantially reduce consumer surplus vis-a-vis uniform advertising, but consumer-optimal plans can substantially improve consumer surplus. We discuss implications for the regulation of targeted advertising.

Suggested Citation

  • Yifan Dai & Andrew Koh, 2024. "Flexible Demand Manipulation," Papers 2410.24191, arXiv.org.
    • Handle: RePEc:arx:papers:2410.24191
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    References listed on IDEAS

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    6. Daron Acemoglu & Ali Makhdoumi & Azarakhsh Malekian & Asuman Ozdaglar, 2023. "A Model of Behavioral Manipulation," NBER Working Papers 31872, National Bureau of Economic Research, Inc.
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