Events

Authors:

• Simon P. ANDERSON
  University of Virginia

• André de PALMA
  Université de Cergy-Pontoise

Advertising must compete for the attention of prospective consumers, and attention is a scarce resource. ”Junk” mail, “spam” e-mail, telemarketing phone calls, and advertising messages generally have the common feature that both sides of the market (advertisers and prospective customers) need to apply effort to generate a transaction. Message recipients supply attention according to average expected benefits of messages received. Senders are motivated by expected profits. The equilibrium number of messages transmitted depends on the profit of the marginal firm along with the communication probability induced from the receiver attention decision. In equilibrium, the wrong messages or too many messages may be sent. A higher cost of message transmission may improve message quality, which raises the number of messages examined: the optimal message rate reflects this. Product class competition also dissipates rents. An opt-out option (e.g. the Federal Do-Not-Call list) beats an out-right ban, but too many individuals opt out. With several media, higher price ones are less congested in equilibrium, and attract fewer advertisers, but with more profitable products. When profitability is correlated with consumer benefits, “the medium is the message” for consumers to pay more attention to higher priced media. There are insufficient incentives to gather market research information on receivers since senders do not internalize the benefits of reducing congestion or improving consumer response from more tailored messages.