On 14th November 2016 (1-2pm) Xingyi Liu, junior professor at the University Würzburg, will give a presentation about “Targeted Advertising and Entry" in Q4.245. Afterwards, Mr. Liu will be available for questions and discussions. His presentation is part of https://wiwi.uni-paderborn.de/dep1/me/research/discussing-research/seam/.
We study an advertising agency’s optimal choice of targeting, when it affects firms’ entry strategies into the advertising and product market. We show that a monopolistic advertising agency faces a trade-off between profit-dissipation and demand-expansion, the former refers to the fact that targeting relaxes competition between firms and reduces their value for advertising space; the latter one arises as targeting induces more entry and increases the demand for advertising. We show that perfect targeting is not optimal for the advertising agency. Compared to social optimum, the advertising agency under-invests in targeting when investment cost is low, and over-invests when targeting is costly.