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A Model of Strategic Targeted Advertising

Author

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  • Andrea Galeotti
  • José Luis Moraga-González

Abstract

We study a simultaneous move game of targeted advertising and pricing in a market with various consumer segments. In this setting we explore the implications of market segmentation on firm competitiveness. If firms are unable to target their ads on different consumer segments, a unique zero-profit equilibrium exists. By contrast, if firms employ targeted advertising, they can obtain positive profits. In equilibrium firms price very aggressively when they address the most profitable segment, quite gently when they target their ads on the least profitable segment and moderately aggressive when they advertise in the entire market.

Suggested Citation

  • Andrea Galeotti & José Luis Moraga-González, 2004. "A Model of Strategic Targeted Advertising," CESifo Working Paper Series 1196, CESifo.
    • Handle: RePEc:ces:ceswps:_1196
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    References listed on IDEAS

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    Keywords

    segmentation; targeted advertising; oligopoly; price dispersion; price discrimination;
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