Skip to content
Licensed Unlicensed Requires Authentication Published by De Gruyter December 13, 2017

Are Online and Offline Advertising Substitutes or Complements? Evidence from U.S. Food Industries

Xi He , Rigoberto Lopez EMAIL logo and Yizao Liu


This article investigates the substitution between online advertising (ONLA) and offline advertising (OFFLA) as well as the impact of adopting ONLA on the total cost of advertising. We estimate an advertising translog cost function at the product-brand level, using monthly observations between 2005 and 2011 for each of three industries: beer, ready-to-eat cereals, and carbonated soft drinks. Although in all three industries we find that traditional media (TV and print) advertisements are close substitutes, we also find that ONLA is a complement to, rather than a substitute for, both TV and print media advertising. This may be explained by ONLA’s targeting younger market segments and acting as a reinforcement of TV and print media advertising exposure. Further results show that the adoption of ONLA has lowered the cost of advertising for achieving a sales target and that its complementarity effect is weakening over time.

JEL Classification: L66; M37; D22

Funding statement: National Institute of Food and Agriculture (Grant/Award Number: ‘Hatch Multistate project S1062, project accession’) Zwick Center for Food and Resource Policy.


Athey, S., E. Calvano, and J. Gans. 2013. “The Impact of the Internet on Advertising Markets for News Media.” National Bureau of Economic Research Working Paper No. 19419.10.3386/w19419Search in Google Scholar

Bergemann, D., and A. Bonatti. 2011. “Targeting in Advertising Markets: Implications for Offline versus Online Media.” The RAND Journal of Economics 42 (3):417–443.10.1111/j.1756-2171.2011.00143.xSearch in Google Scholar

Berndt, E. R., and N. E. Savin. 1975. “Estimation and Hypothesis Testing in Singular Equation Systems with Autoregressive Disturbances.” Econometrica: Journal of the Econometric Society 43 (5/6):937–957.10.2307/1911336Search in Google Scholar

Blackorby, C., and R. R. Russell. 1989. “Will the Real Elasticity of Substitution Please Stand Up? (A Comparison of the Allen/Uzawa and Morishima Elasticities).” The American Economic Review 79 (4):882–888.Search in Google Scholar

Breuer, R., M. Brettel, and A. Engelen. 2011. “Incorporating Long-Term Effects in Determining the Effectiveness of Different Types of Online Advertising.” Marketing Letters 22 (4):327–340.10.1007/s11002-011-9136-3Search in Google Scholar

Bronnenberg, B. J., M. W. Kruger, and C. F. Mela. 2008. “The IRI Marketing Dataset.” Marketing Science 27 (4):745–748.10.1287/mksc.1080.0450Search in Google Scholar

Chambers, R. G. 1988. Applied Production Analysis: A Dual Approach. Cambridge, UK: Cambridge University Press.Search in Google Scholar

Di Fonzo, T., and M. Marini. 2012. “On the Extrapolation with the Denton Proportional Benchmarking Method.” IMF Working Paper. in Google Scholar

Dubé, J. P., G. J. Hitsch, and P. Manchanda. 2005. “An Empirical Model of Advertising Dynamics.” Quantitative Marketing and Economics 3 (2):107–144.10.1007/s11129-005-0334-2Search in Google Scholar

Evans, D. S. 2009. “The Online Advertising Industry: Economics, Evolution, and Privacy.” Journal of Economic Perspectives 23 (3):37–60.10.1257/jep.23.3.37Search in Google Scholar

Frank, M. W. 2008. “Media Substitution in Advertising: A Spirited Case Study.” International Journal of Industrial Organization 26 (1):308–326.10.1016/j.ijindorg.2007.01.002Search in Google Scholar

Gentzkow, M. 2014. “Trading Dollars for Dollars: The Price of Attention Online and Offline.” American Economic Review 104 (5):481–488.10.1257/aer.104.5.481Search in Google Scholar

Giannakas, K., G. Karagiannis, and V. Tzouvelekas. 2012. “Spillovers, Efficiency and Productivity Growth in Advertising.” American Journal of Agricultural Economics 94 (5):1154–1170.10.1093/ajae/aas061Search in Google Scholar

Goldfarb, A. 2014. “What Is Different about Online Advertising?” Review of Industrial Organization 44 (2):115–129.10.1007/s11151-013-9399-3Search in Google Scholar

Goldfarb, A., and C. Tucker. 2011a. “Advertising Bans and the Substitutability of Online and Offline Advertising.” Journal of Marketing Research 48 (2):207–227.10.1509/jmkr.48.2.207Search in Google Scholar

Goldfarb, A., and C. Tucker. 2011b. “Substitution between Offline and Online Advertising Markets.” Journal of Competition Law and Economics 7 (1):37–44.10.1093/joclec/nhq034Search in Google Scholar

Interactive Advertising Bureau. IAB Internet Ad Revenue Report, 2016 Full Year Results. Accessed April 26, 2017. in Google Scholar

Kantar Media Intelligence. Stradegy Database. Accessed July 30, 2015. in Google Scholar

Kaye, B. K., and N. J. Medoff. 2001. World Wide Web: A Mass Communication Perspective. Mountain View, CA: McGraw-Hill Higher Education.Search in Google Scholar

Lewis, R. A., and J. M. Rao. 2015. “The Unfavorable Economics of Measuring the Returns to Advertising.” Quarterly Journal of Economics 130 (4):1941–1973.10.1093/qje/qjv023Search in Google Scholar

Liu, Y., and R. A. Lopez. 2016. “The Impact of Social Media Conversations and Consumer Brand Choices.” Marketing Letters 27 (1):1–13.10.1007/s11002-014-9321-2Search in Google Scholar

Peneycad, M. 2014. “Unfavorable Facts about How Social Media Influences Purchase Behavior.” Social Media Today, January 20. in Google Scholar

Seldon, B. J., R. T. Jewell, and D. M. O’Brien. 2000. “Media Substitution and Economies of Scale in Advertising.” International Journal of Industrial Organization 18 (8):1153–1180.10.1016/S0167-7187(99)00010-7Search in Google Scholar

U.S. Bureau of Labor Statistics. 2015. Producer Price Index for Internet Publishing and Web Search Portals – NAICS 519130. Accessed July 30. in Google Scholar

Uzawa, H. 1962. “Production Functions with Constant Elasticities of Substitution.” The Review of Economic Studies 29 (4):291–299.10.2307/2296305Search in Google Scholar

Zellner, A., and M. S. Geisel. 1970. “Analysis of Distributed Lag Models with Applications to Consumption Function Estimation.” Econometrica: Journal of the Econometric Society 38 (6):865–888.10.2307/1909697Search in Google Scholar

Published Online: 2017-12-13

© 2018 Walter de Gruyter GmbH, Berlin/Boston

Downloaded on 28.11.2022 from
Scroll Up Arrow