Essays on Advertising

According to eMarketer, the total advertising spend in US alone was estimated to be over $238 billion. Firms invest large amounts of money in advertising to promote and inform consumers about their products and services, as well as to persuade them to purchase. The broad theme of advertising has been examined from many different angles in the marketing literature, ranging from empirically measuring effects of TV ads on sales to analytically characterizing the key economic forces stemming from enhanced targetability in online advertising. The purpose of my dissertation is to study some of the key questions which remain unaddressed in the advertising literature. In the first essay, I examine firms' choices of advertising content in a competitive setting. I demonstrate that competitive forces sometimes induces firms to choose advertising content that shifts consumers' perception of product quality. While this strategy hurts firms in a monopoly setting, it increases their profits under competition because it may increase the utility of their offering in comparison with the competing offering. In the second essay, I investigate the optimal mechanism for selling online ads in a learning environment. Specifically, I show that when ad sellers, such as Google, design their ad auctions, it is optimal for them to favor new advertisers in the auction in order to expedite learning their ad performance. In the third essay, I study the impact of tracking consumers' Internet activities on the online advertising ecosystem in the presence of regulations that, motivated by privacy concerns, endow consumers with the choice to have their online activity be tracked or not. I find that when ad effectiveness is intermediate, fewer ads are shown to opt-in consumers, who can be tracked and have their funnel stages inferred by advertisers, than to opt-out consumers, who cannot be tracked. In this case, consumers trade-off the benefit of seeing fewer ads by opting-in to tracking (positive instrumental value of privacy) with the disutility they feel from giving up their privacy (intrinsic cost of privacy). Overall, these findings shed light on novel strategic forces that provide guidance for marketers' advertising decisions in three distinct contexts.