Advertising and Demand for Addictive Goods: The Effects of E-Cigarette Advertising PDF
Revise and Resubmit at Marketing Science
Kellogg Insights Write-Up
Abstract: Although TV advertising for traditional cigarettes has been banned since 1971, advertising for electronic cigarettes remains unregulated. The effects of e-cigarette ads have been heavily debated, but empirical analysis of the market has been limited. Analyzing both individual and aggregate data, I present descriptive evidence showing that i) e-cigarette advertising reduces demand for traditional cigarettes and ii) individuals treat e-cigarettes and traditional cigarettes as substitutes. I then specify a structural model of demand for cigarettes that incorporates addiction and allows for heterogeneity across households. The model enables me to leverage the information content of both datasets to identify variation in tastes across markets and the state dependence induced on choice by addiction. Using the demand model estimates, I evaluate the impact of a proposed ban on e-cigarette television advertising. I find that in the absence of e-cigarette advertising, demand for traditional cigarettes would increase, suggesting that a ban on e-cigarette advertising may have unintended consequences.
Complementarities in Consumption and the Consumer Demand for Advertising PDF
Quantitative Marketing and Economics (2018)
Joint with Harikesh Nair and Pedro Gardete
Stanford Insights Write-Up
Abstract: The standard paradigm in the empirical literature treats consumers as passive recipients of advertising by firms and ignores the fact that in many cases consumers may actively choose whether to consume an ad or not. Becker and Murphy (1993) recognized this aspect of demand for advertising and argued that in many cases demand for advertising and demand for products may be linked by complementarities in joint consumption. We leverage access to an unusually rich dataset that links the TV ad consumption behavior of a panel of consumers with their product choice behavior over a long time horizon. We first show that the data suggests an active role for consumer choice of ads, and for complementarities in joint demand. To interpret the patterns in the data, we fit a structural model for both products and advertising consumption that allows for such complementarities. Interpreting the data through the lens of the model enables a precise characterization of the treatment effect of advertising under endogenous non-compliance. To further illustrate the value of the model, we compare advertising, prices and consumer welfare to a series of counterfactual scenarios motivated by the “addressable” future of TV ad-markets in which targeting advertising and prices on the basis of ad-viewing and product purchase behavior is possible. We find that both profits and net consumer welfare may increase, suggesting that it may be possible that both firms and consumers are better off in the new addressable TV environments.
Revise and Resubmit at Marketing Science
Kellogg Insights Write-Up
Abstract: Although TV advertising for traditional cigarettes has been banned since 1971, advertising for electronic cigarettes remains unregulated. The effects of e-cigarette ads have been heavily debated, but empirical analysis of the market has been limited. Analyzing both individual and aggregate data, I present descriptive evidence showing that i) e-cigarette advertising reduces demand for traditional cigarettes and ii) individuals treat e-cigarettes and traditional cigarettes as substitutes. I then specify a structural model of demand for cigarettes that incorporates addiction and allows for heterogeneity across households. The model enables me to leverage the information content of both datasets to identify variation in tastes across markets and the state dependence induced on choice by addiction. Using the demand model estimates, I evaluate the impact of a proposed ban on e-cigarette television advertising. I find that in the absence of e-cigarette advertising, demand for traditional cigarettes would increase, suggesting that a ban on e-cigarette advertising may have unintended consequences.
Complementarities in Consumption and the Consumer Demand for Advertising PDF
Quantitative Marketing and Economics (2018)
Joint with Harikesh Nair and Pedro Gardete
Stanford Insights Write-Up
Abstract: The standard paradigm in the empirical literature treats consumers as passive recipients of advertising by firms and ignores the fact that in many cases consumers may actively choose whether to consume an ad or not. Becker and Murphy (1993) recognized this aspect of demand for advertising and argued that in many cases demand for advertising and demand for products may be linked by complementarities in joint consumption. We leverage access to an unusually rich dataset that links the TV ad consumption behavior of a panel of consumers with their product choice behavior over a long time horizon. We first show that the data suggests an active role for consumer choice of ads, and for complementarities in joint demand. To interpret the patterns in the data, we fit a structural model for both products and advertising consumption that allows for such complementarities. Interpreting the data through the lens of the model enables a precise characterization of the treatment effect of advertising under endogenous non-compliance. To further illustrate the value of the model, we compare advertising, prices and consumer welfare to a series of counterfactual scenarios motivated by the “addressable” future of TV ad-markets in which targeting advertising and prices on the basis of ad-viewing and product purchase behavior is possible. We find that both profits and net consumer welfare may increase, suggesting that it may be possible that both firms and consumers are better off in the new addressable TV environments.