Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/129602 
Year of Publication: 
2016
Series/Report no.: 
Working Paper Series No. 16-03
Publisher: 
University of Mannheim, Department of Economics, Mannheim
Abstract: 
We consider product markets in which consumers are interested only in a specific product category and initially do not know which product category matches their tastes. Using sophisticated tracking technologies, an intermediary can make inferences about a consumer's preferred product category and offer advertising firms the possibility to target their ads to match the consumer's taste. Such targeting reduces overall advertising costs and, as a direct effect, increases industry profits. However, as we show in this paper, when consumers form reference prices and are loss averse, more precise targeting may intensify competition between firms. As a result, firms may earn higher profits from "de-targeted" advertising; i.e., when the intermediary deliberately informs about some products and their price quotes from outside a consumer's preferred product category.
Subjects: 
Targeted advertising
Informative advertising
Consumer loss aversion
Reference prices
Contextual inference
Consumer recognition
Behavioral industrial organization
JEL: 
L13
D43
M3
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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