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The Unbundling of Advertising Agency Services: An Economic Analysis

1American University of Sharjah

2Massachusetts Institute of Technology and National Bureau of Economic Research

3U.S. Census Bureau

4Harvard Business School

Citation Information: Review of Marketing Science. Volume 10, Issue 1, ISSN (Online) 1546-5616, DOI: 10.1515/1546-5616.1164, December 2012

Publication History:
Published Online:
2012-12-03

Abstract

We address a puzzle surrounding the shift from bundling to unbundling of U.S. advertising agency services and the slow pace of change over several decades. We model an agency’s decision as a tradeoff between the fixed cost to the advertiser of establishing a relationship with an agency and pecuniary economies of scale from media services provision. Using micro-data from the U.S. Census of Services for 1982-2007, we find agencies are more likely to unbundle with increasing size, diversification and higher media prices, and less likely with increasing age, larger media volume, and an interaction between media prices and volume.

Keywords: bundling; ad agency services; commission compensation

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