تبلیغات و نقش غربالگری رسانه های جمعی

We argue that there exists a problem of adverse selection in the provision of advertising which makes it impossible to establish direct markets for it. The media are regarded as intermediaries that can channel advertising and allocate it efficiently by screening consumers. This role of media may result in excessive quality and prices of media products. These distortions will be more severe if consumers’ quality preferences are relatively homogenous.

Both in the US and in Europe numerous professional websites offer consumers money for reading E-mail advertisements, viewing advertising banners in their browsers, and the like. Those websites are financed by the firms that book the advertising. What they offer is something that is a rare phenomenon; they are direct suppliers of the product advertising, which is typically provided indirectly, as a bundle with some media product. The question arises why there are so few markets on which advertising is traded directly. We argue that this is mainly due to adverse selection. Clearly, firms are willing to pay different amounts of money to different consumers depending on unobservable characteristics like income, age, or interest in the advertised product. Hence, every consumer has an incentive to claim that he has profitable characteristics. Following Akerlof’s (1970) classical paper, this incentive may lead to a market unraveling so that only consumers with bad characteristics can trade. The market for rich consumers (who require a relatively high compensation since they usually have higher opportunity costs of time) breaks down because it is not possible to distinguish them from consumers who are less attractive as advertising targets. This phenomenon is precisely what can be observed at the websites that were mentioned above. All of the major advertising providers are visibly plagued by adverse selection. Most of them pay extremely low rates – usually around one cent for viewing an on-line advertisement for a significant amount of time and then following a confirmation procedure. Also, the advertising that they feature is obviously targeting low income consumers. Major advertisers are bargain-websites, loan-sharks, financial institutions offering credit cards without solvency check, and dubious internet business opportunities. Clearly, the average payout rate is too low for high income consumers, who drop out of the market, reducing the quality of the pool; this implies that the payout rate has deteriorated even more, and the process repeats until only the lowest income type remains.1,2

We have argued that direct markets for advertising, in which consumers are compensated for being exposed to advertisements, are prone to market failure. Due to asymmetric information, consumers with preferable traits for advertisers cannot be distinguished from consumers who are less valuable advertising targets. Hence, payments cannot be made contingent on consumer characteristics, which is likely to be necessary to convince high types to consume advertising. The provision of advertising through media platforms like TV broadcasting was shown to mitigate this problem by the broadcasters offering different channels in order to show targeted advertising. While there may still exist a selection problem (low types will prefer the high type channel if it contains less advertising), sorting can be achieved by distorting the high type program. This results in excessive prices and quality levels of channels targeting high income consumers. Even if several broadcasters compete, price competition will be soft as lower subscription fees would induce low types to switch to high type channels, deteriorating the advertising rate that can be demanded from advertisers.