Targeting Advertising Spending and Price on the Hotelling Line


ارائه کننده:  دکتر شروین تهرانی، استاد دانشگاه Texas at Dallas

زمانچهارشنبه ۲۳  تیر  ۱۴۰۰ ساعت ۱۴:۳۰ تا ۱۶:۰۰

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About the Speaker

My name is Shervin Shahrokhi Tehrani. I received my Ph.D. in Mathematics & Marketing from the University of Toronto. I am a theorist and an empirical researcher in marketing. My first paper was about the benefit of selling the product through competitor outlets. My recent research shows that sending the right message to the right consumers can be profitable even in a competitive market where all firms do advertising targeting. The heart of my research is to construct practical and pragmatic models to explain people’s choice behavior under bounded rationality. Also, I have some work in progress related to advertising strategy in political campaigns, herding behavior, and the dialysis industry in the US


We examine the marginal value of advertising spending targeting given price targeting in the Hotelling model. This calls for a comparison between two equilibria, the equilibrium when both advertising spending and price are targeted (“full targeting”) and the equilibrium when only price is targeted (“partial targeting”). Our analysis is comprehensive in that we consider both game forms of interest: advertising spending and price chosen simultaneously, and advertising spending chosen before price. We show that when advertising spending is targeted it changes the nature of informational product differentiation within local markets. Under full targeting firms implicitly target their “loyalists” at stronger locations and “switchers” at weaker locations, but under partial targeting they do exactly the opposite. As a result, in the former, but not in the latter, advertising spending and prices are correlated along the Hotelling line, both increasing with consumer preference/competitive advantage—as in the Dorfman-Steiner theorem

Our analysis shows that both firms will target their advertising spending given the opportunity to do so, if the marginal cost of advertising spending targeting given price targeting is small. However, they may or may not be better off in the resulting full-targeting equilibrium. In the sequential game form, they will be; in the simultaneous game form, they may not be. This suggests (i) that advertising spending targeting has both benefits and costs for the firms, and (ii) that targeting works better when firms are able to pre-commit to their advertising spending levels, which is easier to do in the traditional advertising media (TV, radio, print) than in the newer online media (display, social, mobile)