Targeted Advertising and Media Market Competition

The Internet provides media firms with an unparalleled opportunity to target advertising towards their consumers. This paper considers how targeted advertising affects different media markets. I show that media firm profits rise and advertising prices rise the most with the ability to target advertising in more competitive media markets and those in which consumers are more averse to advertising. The results also have implications for the policy debate surrounding behavioral targeting techniques. In particular, in competitive media markets, targeted advertising may contribute to excessive media market entry and lead to under-provision of advertising. Such effects mitigate the positive welfare effects of targeting through improvements in the matching between consumers and advertisers.