The Effects of Microtargeting on Conversion Rates and the Role of Information Asymmetry

Prof. Francisco Cisternas
Assistant Professor, The Chinese University of Hong Kong

Date: 23 February 2024 (Friday)
Time: 03:00 pm to 04:30 pm
Venue: E22-G015
Host: Prof. Kao SI, Assistant Professor in Marketing


Behavioral advertising targets consumers based on their personal characteristics, while contextual advertising is based on the content consumers are currently viewing. Nowadays, many websites employ a combination of the two, known as microtargeting, to display more tailored ads to consumers. Although it is debated whether using behavioral data benefits or harms publishers’ revenues, the prevailing belief has been that more personalized ads always yield higher conversion rates. However, recent empirical evidence indicates that less targeted ads can sometimes achieve equal or even greater conversion rates.

We introduce a game-theoretic model to investigate this phenomenon and explain why disabling microtargeted behavioral advertising can sometimes result in increased conversion rates and publisher revenue simultaneously. We link this outcome to the information asymmetry present in the online advertising market. Allowing third-party cookies on a website enables some advertisers to access behavioral data from large ad exchanges, a privilege not universally available. Moreover, not all advertisers have the advanced tools necessary to leverage this additional information effectively. We show that such information asymmetry can reduce market efficiency. Surprisingly, disabling microtargeting can create a more efficient market by providing equal opportunities to all advertisers, despite them being less informed.



Prof. Francisco Cisternas is an Assistant Professor of Marketing at The Chinese University of Hong Kong (CUHK) Business School. He received his PhD in Business Administration (Marketing) from Carnegie Mellon University, and a BS in Industrial Engineering and MS in Operation Management from the University of Chile. His research focuses on modelling the interactions between the digital and physical channels using big data. His research applications include financial, sports and retail industries. Prof. Cisternas’ work was awarded two research grants from the PNC Centre for Financial Services and Innovations and was distinguished with the Dipankar and Sharmila Chakravarti fellowship for his contributions to research in Marketing.

 All are welcome!