Abstract
Leveraging new data that links TV ad-viewing with product purchases for a large sample of households, we provide empirical evidence that is consistent with Becker and Murphy's (1993) proposal that advertising can act as a complement to product consumption. Under an exclusion restriction that product prices do not affect the utility from consuming advertising directly, we document that ad-skipping is lower when a household has purchased more of the advertised brand. Fitting a structural model that incorporates such complementarities to the data, we evaluate consumer welfare in advertising targeting counterfactuals motivated by the “addressable” future of TV. Reflecting the positive view of advertising in the model, we find that net consumer welfare may increase in several scenarios. This occurs because under improved targeting, firms shift advertising to those who are likely to value it. At the same time, consumers that do not value the ads end up skipping them, mitigating possible welfare losses. Both forces are relevant to assessing advertising effects in a world with improved targeting and ad-skipping technology.
Published Version
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