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`You Will:' A Macroeconomic Analysis of Digital Advertising

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Abstract

An information-based model is developed where traditional and digital advertising finance the provision of free media goods and affect price competition. Digital advertising is directed toward consumers while traditional advertising is undirected. The equilibrium is suboptimal. Media goods are under provided with both types of advertising. Additionally, traditional advertising is excessive because it is undirected. The tax-cum-subsidy policy that overcomes these inefficiencies is characterized. The model is calibrated to the U.S. economy. Digital advertising increases welfare significantly and is disproportionately financed by better-off consumers. The welfare gain from the optimal policy is much smaller than the one realized by the introduction of digital advertising. Forthcoming, Review of Economic Studies.

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  • Jeremy Greenwood & Yueyuan Ma & Mehmet Yorukoglu, 2020. "`You Will:' A Macroeconomic Analysis of Digital Advertising," Economie d'Avant Garde Research Reports 32, Economie d'Avant Garde.
    • Handle: RePEc:eag:rereps:32
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    Cited by:

    1. Gueyon Kim, 2022. "Trade-Induced Adoption of New Work," Working Papers 2022-007, Human Capital and Economic Opportunity Working Group.
    2. Kim, Gueyon, 2022. "Trade-Induced Adoption of New Work," IZA Discussion Papers 15165, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    AT&T's You Will advertising compaign; consumer welfare; digital and traditional advertising; directed and undirected advertising; free media goods; GDP measurement; leisure; information frictions; price competition; public policy.;
    All these keywords.

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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