Abstract
This chapter develops a two-period sales model to investigate the competitive effects of targeted advertising based on consumer purchase history. We find that, the firm’s ability of targeting may damage industry profits, consumer surplus and even social welfare. The conditions under which targeted advertising is positive or negative are derived, showing that competition is softened in the second period but intensified in the first period because of the anticipation behavior of competing firms. It is suggested that firms under competing environments cautiously initiate targeted advertising with appropriate contents.
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