The effects of targeted digital advertising on consumer welfare

Abstract

ABSTRACT Prior research has focused on societal and regulatory issues related to digital advertising, yet there is a gap in understanding the unique consumer welfare implications of different types of digital ad targeting. This paper outlines key benefits, unintended risks, and potential for manipulation across the three major types of targeting: demographic/psychographic, behavioral, and geographic with the goal of understanding how to maximize the benefits of targeted digital advertising while minimizing harm to consumer welfare. Because regulatory issues are complex as digital ad targeting practices continue to evolve, we consider similarities and differences across ad targeting types. We also make suggestions for future research to address pressing issues of relevancy, transparency, consent, autonomy, and vulnerability in digital ad targeting, by examining intricacies in the collection and dissemination of demographic/psychographic, behavioral, and geographic consumer data. This research provides a framework to protect consumers in the digital age by informing industry and public policy regulatory practices.