Targeted Advertising in the Information Age

Chapter 1, "As Webpages Get Narrower, Do Ads Get Nichier? An Online Field Experiment in Google Contextual Ads," Firms target their advertisements to the consumer segments delivered by webpages. I develop an auction model where firms target segments of heterogeneous consumers. From this, I derive an empirical framework, which I use to test whether more niche or more general ads win the auction for more narrowly-focused webpages. To do this, I create many differentiated webpages in an experimental fashion and observe the Google text ads that are placed on them. Then, I compare general webpages, such as a `Ford' webpage, with more narrowly-focused webpages, such as a `Ford Truck' webpage, by using a measures of ad niche-ness. I use a Hierarchical Latent Dirichlet Allocation algorithm from the machine-learning literature to create a robust measure of ad niche-ness. My results show a U-shaped relationship between webpage narrowness and ad niche-ness: Ads for less niche products tend to appear on moderately narrow-focused webpages.

In Chapter 2, "Imperfect Targeting of Advertising and Privacy Regulations," I investigate how privacy regulations affect consumer welfare through advertising. Tougher privacy regulations reduce the accuracy of information collected on consumers. This discourages targeted advertising. When firms target advertise, privacy regulations ambiguously affect welfare. Less accurate information decreases welfare by inducing a smaller, less-targeted selection of products. Yet less accurate information increases welfare by inducing fewer annoying ads, even without any pricing effects. In extensions, I find that tougher privacy regulations increase the product selection benefit and the ad annoyance cost through reducing the ad price; but greater marketing costs have the opposite effect; and ad avoidance ads has no effect.

In Chapter 3, "Showing Ads To The Wrong Consumers: Strategic Ad Platform Inefficiency In Online Targeted Advertising," I find that an ad platform has an incentive to induce lower product prices. Consumers pay a search cost when clicking on an ad. To induce consumer clicking, an ad platform adopts a targeting strategy that induces the merchant to lower its price. This involves showing the ad to some consumers who it rationally expects not to buy the product and not showing the same ad to other consumers who it would rationally expect to buy the product.