Price Discrimination and Targeted Advertising: A Welfare Analysis

: This paper presents a monopolistic model of price discrimination by means of targeted informative advertising. Targeting is defined as the ability of the firm to direct messages with different contents to different segments of consumers. Segmentation is based on different valuations of the firm s product. The monopolist chooses the level of advertising for each segment of consumers and discriminates price accordingly. The paper shows that when targeting is imperfect the monopolist will over advertise to the highest valuation group of consumers to the detriment of the lowest valuation group. Only when targeting is perfect will the seller behave in a socially desirable manner.