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Products and Advertising Markets

Paper Session

Saturday, Jan. 7, 2023 8:00 AM - 10:00 AM (CST)

Hilton Riverside, Grand Salon A Sec 4
Hosted By: American Economic Association
  • Chair: Pierre Dubois, Toulouse School of Economics

Pricing Power in Advertising Markets: Theory and Evidence

Matthew Gentzkow
,
Stanford University and NBER
Jesse Shapiro
,
Harvard University
Frank Yang
,
Stanford University
Ali Yurukoglu
,
Stanford University and NBER

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 television outlets whose viewers watch more television charge a lower price per impression to advertisers. This finding helps rationalize well-known stylized facts such as a premium for younger and more male audiences on television. Also consistent with the theory, we show that social media advertising markets feature a premium for older audiences. A quantitative version of our model whose only free parameter is a scale normalization can explain 35 percent of the variation in price per impression across owners of television networks, and aligns with recent trends in television advertising revenue. We use the model to quantify the impact of mergers, the effect of competition on incentives to produce content, and the effect of Netflix ad carriage on prices for linear television advertising.

Measuring TV Advertising Effectiveness by Instrumenting for Local Channel Viewership

Shirsho Biswas
,
University of Washington
Jean-Pierre Dubé
,
University of Chicago
Andrey Simonov
,
Columbia University

Abstract

We address the potential attenuation bias in estimates of the advertising elasticity of de¬mand due to measurement error in aggregate measures of exposure to ads. This measurement error reflects the local differences in TV channel viewership, including the potentially self-selected manner in which consumers become exposed to a brand’s ad campaign across channels and time. Novel data tracking television viewership by channel and daypart across markets allows us to apportion DMA-level advertising to the zipcode level. We then rely on the quasi-random assignment of channels to positions across local cable markets to construct a ”shift-share” instrument, implemented using a GMM estimator that is robust to measurement error as well as the traditional simultaneity concerns associated with strategic advertising placement. In a case study of over 200 leading, national CPG brands, we find that our GMM estimates are larger in magnitude with the majority of brands exhibiting a statistically significant advertising effect.

Soda Tax and Dynamic Advertising

Rossi Abi-Rafeh
,
Institute for Fiscal Studies and Toulouse School of Economics
Pierre Dubois
,
Toulouse School of Economics
Rachel Griffith
,
Institute for Fiscal Studies and University of Manchester
Martin O'Connell
,
University of Wisconsin-Madison

Abstract

Soda taxes are commonly used to curb consumption. The effects of taxes on prices and consumption
have been studied in isolation, but they are also likely to affect firms' strategic choices over advertising
spending together with the price equilibrium. We study how soda taxes affect both pricing and advertising
policies of fi rms in a dynamic oligopoly game. We develop a dynamic structural model applied to the
cola market. We exploit the existence of advertising agencies, who choose advertising spots on behalf
of advertisers (given the advertisers budgets); this allows us to solve the otherwise intractable dynamic
equilibrium impact of the introduction of a tax. We nd that the dynamic competition game between
the main players (Coca Cola and Pepsi) results in asymmetric responses in advertising spending, with
both firms reducing advertising expenditure,
JEL Classifications
  • L2 - Firm Objectives, Organization, and Behavior
  • M3 - Marketing and Advertising