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Purchase-Based Targeted Advertising: A Competitive Analysis

Purchase-Based Targeted Advertising: A Competitive Analysis
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Author(s): Jianqiang Zhang (Jiangsu Normal University, China), Weijun Zhong (Southeast University, China)and Shue Mei (Southeast University, China)
Copyright: 2015
Pages: 18
Source title: Strategic E-Commerce Systems and Tools for Competing in the Digital Marketplace
Source Author(s)/Editor(s): Mehdi Khosrow-Pour, D.B.A. (Information Resources Management Association, USA)
DOI: 10.4018/978-1-4666-8133-0.ch009

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Abstract

Purchase-Based Targeted Advertising (PBTA) refers to the advertising that is targeted to an individual based on his or her purchase histories, which is ubiquitous in the age of e-commerce. This chapter examines the competitive effects of PBTA by establishing a two-period duopoly model: the first period consists of the consumer information gathering process while the second is the period where PBTA is embraced. Based on this model, it is found that PBTA may improve or damage industry profits, consumer surplus, as well as social welfare. The conditions under which the competitive effect is positive or negative are derived, showing that whether PBTA is beneficial or detrimental depends on the content of advertising designed by the competing firms. It is suggested that firms under competitive environments cautiously deploy PBTA with appropriate advertising contents.

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