Article | RAND Journal of Economics | summer 2011

Advertising, the Matchmaker

by Bharat N. Anand and Ron Shachar

Abstract

We empirically study the informational role of advertising in matching consumers with products when consumers are uncertain about both observable and unobserved program attributes. Our focus is on the network television industry, in which the products are television shows. We estimate a model that allows us to distinguish between the direct effect of advertising on utility and its effect through the information set. A notable behavioral implication is that exposure to informational advertising can decrease the consumer's tendency to purchase the promoted product. The structural estimates imply that an exposure to a single advertisement decreases the consumer's probability of not choosing her best alternative by approximately 10%. Our results are relevant for industries characterized by product proliferation and horizontal differentiation.

Keywords: Advertising; Information; Consumer Behavior; Television Entertainment; Risk and Uncertainty; Product; Decision Choices and Conditions; Advertising Industry;

Citation:

Anand, Bharat N., and Ron Shachar. "Advertising, the Matchmaker." RAND Journal of Economics 42, no. 2 (summer 2011): 205–245. (Lead Article.)