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

Xi He , Rigoberto Lopez EMAIL logo and Yizao Liu

Abstract

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.

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Published Online: 2017-12-13

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