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Pricing Power in Advertising Markets: Theory and Evidence

  • Matthew Gentzkow
  • Jesse M. Shapiro
  • Frank Yang
  • Ali Yurukoglu
American Economic Review
vol. 114, no. 2, February 2024
(pp. 500-533)
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Abstract

Existing theories of media competition imply that advertisers will pay a lower price in equilibrium to reach consumers who multi-home across competing outlets. We generalize and extend this theoretical result and test it using data from television and social media advertising. We find that the model is a good match, qualitatively and quantitatively, to variation in advertising prices across demographic groups, outlets, platforms, and over time. We use the model to quantify the effects of competition within and across platforms.

Citation

Gentzkow, Matthew, Jesse M. Shapiro, Frank Yang, and Ali Yurukoglu. 2024. "Pricing Power in Advertising Markets: Theory and Evidence." American Economic Review, 114 (2): 500-533. DOI: 10.1257/aer.20220943

Additional Materials

JEL Classification

  • G34 Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
  • K21 Antitrust Law
  • L13 Oligopoly and Other Imperfect Markets
  • L82 Entertainment; Media
  • M37 Advertising