Substitution between Online and Offline Advertising: Evidence from the Carbonated Soft Drink Industry
2017
He, Xi | Lopez, Rigoberto A. | Liu, Yizao
As in previous studies on traditional media, previous work has assumed that online and offline advertising are substitutes. However, empirical evidence for this premise is lacking. This paper investigates the substitution between online advertising and offline advertising as well as the impact of the introduction of new media technology on the cost of advertising. Using a rich dataset of monthly observations for 52 carbonated soft drink brands between 2005 and 2011, we estimate a translog cost function that considers the mix of on/off line advertising and online advertising adoption at the brand level. As in previous work, we find that TV and print media are close substitutes. Surprisingly, however, we find that online advertising is a complement to rather than a substitute for both TV and print media advertising. This might be explained by online advertising’s targeting younger market segments and acting as a reinforcement of TV and print media advertising exposure. Further results show that the adoption of online advertising has lowered the cost of advertising for achieving a sales target but that its role as a complement rather than a substitute is weakening.
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