Alessandro Bonatti

Targeting in advertising markets: implications for offline versus online media

We develop a model with many advertisers (products) and many advertising markets (media). Each advertiser sells to a different segment of consumers, and each medium has a different ability to target advertising messages. We characterize the competitive equilibrium in the media markets and evaluate the implications of targeting in advertising markets. An increase in the targeting ability leads to an increase in the total number of purchases (matches), and hence in the social value of advertising. Yet, an improved targeting ability also increases the concentration of firms advertising in each market. Surprisingly, we then find that the equilibrium price of advertisements is first increasing, then decreasing in the targeting ability. We trace out the implications of targeting for competing media. We distinguish offline and online media by their targeting ability: low versus high. As consumers, relative exposure to online media increases, the revenues of offline media decrease, even though the price of advertising might increase.

How do firms make money selling digital goods online

We review research on revenue models used by online firms who offer digital goods. Such goods are non-rival, have near zero marginal cost of production and distribution, low marginal cost of consumer search, and low transaction costs. Additionally, firms can easily observe and measure consumer behavior. We start by asking what consumers can offer in exchange for digital goods. We suggest that consumers can offer their money, personal information, or time. Firms, in turn, can generate revenue by selling digital content, brokering consumer information, or showing advertising. We discuss the firm’s trade-off in choosing between the different revenue streams, such as offering paid content or free content while relying on advertising revenues. We then turn to specific challenges firms face when choosing a revenue model based on either content, information, or advertising. Additionally, we discuss nascent revenue models that combine different revenue streams such as crowdfunding (content and information) or blogs (information and advertising). We conclude with a discussion of opportunities for future research including implications for firms’ revenue models from the increasing importance of the mobile Internet.

Career Concerns and Market Structure

This paper analyzes the impact of market structure on career concerns. Effort increases the probability that a skilled agent achieves a one-time breakthrough. Wages are based on assessed ability and on expected output. For any wage, the agent works too little, too late. Under short-term contracts, effort and wages are single-peaked with seniority, due to the strategic substitutability of effort levels at different times. Both delay and underprovision of effort worsen if effort is observable. Commitment to wages by competing firms mitigates these inefficiencies. In that case, the optimal contract features piecewise constant wages and severance pay.

Brand-Specific Tastes for Quality

This paper develops a model of nonlinear pricing with competition. The novel element is that each consumers willingness to pay for quality is private information and is allowed to differ across brands. The consumers preferences are represented by a multidimensional type containing the marginal value of quality for different products. Buyers with high willingness to pay for quality also display strong preferences for particular brands, and require higher discounts in order to switch away from their favorite product. Therefore, competition is fiercer for buyers with lower tastes for quality, and hence more elastic demands. This is in sharp contrast to earlier models in which competition is fiercer for higher-taste, more valuable buyers. In equilibrium, firms either compete intensively for the entire market (providing strictly positive rents to all consumers) or shut down the least profitable segment of the market. Quality levels are distorted downwards for all buyers, except for those with the highest type. The number of competing firms and the degree of correlation across brand preferences enhance the efficiency of the allocation.

Learning to Disagree in a Game of Experimentation

We analyze strategic experimentation in which information arrives through fully revealing, publicly observable “breakdowns.” When actions are hidden, there exists a unique symmetric equilibrium that involves randomization over stopping times. With two players, this is the unique equilibrium. Randomization leads to dispersion in actions and to belief disagreement on the equilibrium path. The resulting lack of coordination has significant welfare consequences. In contrast, when actions are observable, the equilibrium is pure and welfare improves.

Selling Experiments: Menu Pricing of Information

A monopolist sells informative experiments to heterogeneous buyers. Buyers differ in their prior information, and hence in their willingness to pay for additional signals. The monopolist can profitably offer a menu of experiments. We show that, even under costless information acquisition and free degrading of information, the optimal menu is quite coarse. The seller offers at most two experiments, and we derive conditions under which at vs. discriminatory pricing is optimal.

The Design and Price of Information

This paper analyzes the trade of information between a data buyer and a data seller. The data buyer faces a decision problem under uncertainty and seeks to augment his initial private information with supplemental data. The data seller is uncertain about the willingness-to-pay of the data buyer due to this private information. The data seller optimally offers a menu of (Blackwell) experiments as statistical tests to the data buyer. The seller exploits differences in the beliefs of the buyer’s types to reduce information rents while limiting the surplus that must be sacrificed to provide incentives.

Bargaining over a New Welfare State ∗ A Model of the Regional Distribution of New Deal Funds

The goal of this paper is to develop an estimable model of President-Congress bargaining in the US, and to use this model to provide a better understanding of the objectives behind the New Deal. In the model, the distribution of federal funds across regions of the country is the outcome of a bargaining game in which the President acts as the agenda-setter and Congress bargains over the final shape of the spending bill. For any given preferences (of the President) and any distribution of seats in Congress, the model delivers a unique predicted allocation. Combined with data on New Deal programs, we use this to estimate the objectives of the Roosevelt administration. The results indicate that economic concerns for relief and recovery, though not necessarily for fundamental reform and development, largely drove the New Deal spending, and that political concerns also mattered but to a lesser extent. In addition, our model indicates that a less politically minded President would not have been constrained by Congress the way Roosevelt was.