`You Will:' A Macroeconomic Analysis of Digital Advertising

Jeremy Greenwood, Yueyuan Ma and Mehmet Yorukoglu

Economie d'Avant Garde Research Reports from Economie d'Avant Garde

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. In Review of Economic Studies (2024).

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. (search for similar items in EconPapers)
JEL-codes: E1 L1 O3 (search for similar items in EconPapers)
Date: 2020-10
New Economics Papers: this item is included in nep-ind and nep-pay
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Working Paper: ‘You Will:’ A Macroeconomic Analysis of Digital Advertising (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eag:rereps:32

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