Advertising, consumer awareness, and choice: evidence from the U.S. banking industry

Elisabeth Honka, Ali Hortaçsu, Maria Ana Vitorino

Research output: Contribution to journalArticlepeer-review

22 Scopus citations

Abstract

How does advertising influence consumer decisions and market outcomes? We utilize detailed data on consumer shopping behavior and choices over bank accounts to investigate the effects of advertising on the different stages of the shopping process: awareness, consideration, and choice. We formulate a structural model with costly search and endogenous consideration sets, and show that advertising in the U.S. banking industry is primarily a shifter of awareness as opposed to consideration or choice. Advertising makes consumers aware of more options, search more, and find better alternatives. This increases the market share of smaller banks and makes the industry more competitive.

Original languageEnglish (US)
Pages (from-to)611-646
Number of pages36
JournalRAND Journal of Economics
Volume48
Issue number3
DOIs
StatePublished - Sep 1 2017

Bibliographical note

Funding Information:
∗University of California Los Angeles; elisabeth.honka@anderson.ucla.edu. ∗∗University of Chicago and NBER; hortacsu@uchicago.edu. ∗∗∗University of Minnesota; vitorino@umn.edu. We are grateful to Frederico Belo, Mark Bergen, Thomas Holmes, Mitch Lovett, John Lynch, Amil Petrin, Enno Siemsen, Aaron Sojourner, and Joel Waldfogel for their numerous comments and suggestions. We also thank the participants of the 2013 Marketing Science conference (Istanbul), the 2014 UT Dallas FORMS conference, the 2014 IIOC conference (Chicago), the 2014 Yale Customer Insights conference (New Haven), the 2014 CIRPÉE Conference on Industrial Organization (Montreal, Canada), the 2014 Summer NBER Industrial Organization Meeting (Cambridge, MA), the 2014 Summer Institute in Competitive Strategy (Berkeley), the 2014 Marketing Dynamics conference (Las Vegas), the 2014 Annual Federal Trade Commission Microeconomics Conference (Washington DC), the 2016 Workshop on the Economics of Advertising and Marketing (Vilnius, Lithuania), and seminar participants at the Carlson School of Management (University of Minnesota), Brown University, Anderson School of Management (UCLA), Booth School of Business (University of Chicago), Simon Business School (University of Rochester), Johnson School of Management (Cornell University), Kellogg School of Management (Northwestern University), Universitat Autònoma de Barcelona, and Columbia University for their comments. We specifically thank the discussants Tat Chan, Judith Chevalier, Gautam Gowrisankaran, Sanjog Misra, Sridhar Narayanan, Marc Rysman, Anna Tuchman, and Lawrence White for the detailed comments on our work. We are grateful to RateWatch and to an anonymous market research company for providing us with the data. Mark Egan provided excellent research assistance. This article was generously supported by the NSF (grant no. SES-1426823) and by the Dean’s Small Grants Program at the University of Minnesota Carlson School of Management. All errors are our own.

Funding Information:
We are grateful to RateWatch and to an anonymous market research company for providing us with the data. Mark Egan provided excellent research assistance. This article was generously supported by the NSF (grant no. SES?1426823) and by the Dean's Small Grants Program at the University of Minnesota Carlson School of Management. All errors are our own.

Publisher Copyright:
© 2017, The RAND Corporation.

Copyright:
Copyright 2017 Elsevier B.V., All rights reserved.

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