Presented by Dr Heiko Karle with Markus Reisinger.


We consider a market with two symmetric firms and two asymmetric consumer groups. Firms send advertising messages which inform consumers about the existence and the price of their product (Butters, 1977). Targeting a specific consumer is imperfect as with some probability the consumer is not reached. We show that a higher targeting probability has a non-monotone effect on firms’ profit. If the probability of successfully targeting a specific consumer is low, all firms target the high-type consumer and more fine-tuned targeting amplifies price competition between firms and decreases firms’ profit (competition for cherries). If the probability of successfully targeting is sufficiently high, however, more fine-tuned targeting increases firms’ profit because firms segment the market by targeting different consumers. This reduces the competitive pressure for firms. We also characterize conditions under which firms prefer no targeting to perfect targeting technologies.

Keywords: Targeted advertising, Informative advertising, price competition.

JEL-classification: D43, M37.

About the presenter’s visit

Dr Heiko Karle will be visiting the School of Economics on Tuesday 16th April.  While here he will be using room 520A Colin Clark Building.  If you would like to meet with him or have lunch or dinner with him please contact A/Prof Heiko Gerlach who will be his host while at The University of Queensland.  A/Prof Heiko Karle can be contacted on

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