Branding and Product Differentiation in Markets with Advertising

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This award funds research in empirical microeconomics. The project makes two major contributions.First, it evaluates the extent to which the large price premium attached to national brands in consumer packaged goods markets reflects a lack of information or sophistication on the part of consumers. By bringing together comprehensive data on consumer purchases with novel survey and demographic data, the researchers are able to estimate how the market shares, prices, and characteristics of goods sold would change if all consumers were fully informed about the relative merits of the goods on the grocery store shelf. Using this information they are able to inform important policy questions in consumer protection, product regulation, and competition policy. The novel methodologies they develop are be useful beyond the products studied in this research; the results will inform broader debates about the effect of consumer information on market competition.Second, the research provides a framework for studying the effect of advertising competition on advertising prices and consumer welfare, with a special focus on online media markets. As media, and especially news media, move to new online platforms, important questions have emerged about whether advertising-funded online media will supply informative news from a diverse range of viewpoints. We will use industry data on online advertising markets to study the effect of competition for advertisers and consumers on the ideological orientation and diversity of online news media, as well as to study questions about online content delivery beyond the news. Our study will provide some of the first large-scale evidence on the strength of advertising competition online and will be relevant to emerging policy debates about the regulation and financing of online journalism.