The Effect of the Internet on Advertising Expenditures : An Empirical Analysis Using a Panel of Countries

The Internet can affect advertising expenditures through various channels. Although the traditional news media perceives the increase in Internet use as a challenge to their survival, the effect of the Internet on the assignment of advertising budgets across media outlets is unclear. For example, offline advertising can induce search engine use making online and offline advertising complements. The impact of the Internet on advertising expenditures is also uncertain because the Internet: has made media available for many individuals in places where their consumption was previously either banned or technologically infeasible (e.g. work or mobile), has reduced waste impressions by improving advertising targeting, has changed the nature of many commercial transactions that now obviate the need for paid advertising (e.g. Craigslist), and may also affect advertising equilibrium prices. This paper quantifies the effect of the increase in Internet use on advertising expenditures for both individual media types and overall. I use a panel of ten years of data at the country level containing information on advertising expenditures by medium and Internet penetration for more than eighty countries. I find that the Internet reduced advertising expenditures on both television and print media (newspapers and magazines), but had no effect on radio expenditures. I also find that the Internet reduced total advertising expenditures, including expenditures on both traditional media and the Internet