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Television advertisers consider men between 18 and 34 a coveted demographic, often spending up to three times more to reach them compared to women and older adults. Conversely, on platforms such as Instagram and TikTok, older audiences can be more expensive to target.

These price discrepancies may seem puzzling. Young men's purchasing power is not necessarily greater than that of older adults. One might assume digital advertisers would focus on younger individuals who are more active online. However, media ad prices are primarily influenced by the amount of time viewers spend consuming content where ads are placed.

More active audiences command a lower advertising price per impression, while groups that do not engage as frequently cost a premium due to their scarcity. Thus, advertisers pay more to reach young men who watch TV infrequently and older viewers who stream fewer videos or shows.

This is a key takeaway from a recent paper by Stanford Graduate School of Business researchers Ali Yurukoglu, Matthew Gentzkow, and Frank Yang, PhD ’24. "In this advertising market, it is not purely a demand story; it's a supply story," Yurukoglu says. "What's being sold are the eyeballs of the consumers. Data show that there are fewer young eyes on sale for TV because fewer young people watch TV. And older people are more scarce online."

The Stanford researchers and Jesse M. Shapiro of Harvard adapted an existing economic model of competition in advertising markets and tested it on advertising data. This model explains around 35% of the money that TV and online advertisers pay to reach different groups. The researchers believe they are the first to quantify the relationship between an outlet's ad pricing and how active various segments of its audience are.

"Since a huge part of the economy now is powered by advertising, it's really important to know how valuable — and why — different consumers are to advertisers because that has a huge impact on what kinds of products and content are produced," says Gentzkow, a senior fellow at the Stanford Institute for Economic Policy Research (SIEPR).

This scarcity factor helps explain price differences. For example, a 30-second televised spot during the 2024 Super Bowl cost advertisers $7 million because among the over 100 million Super Bowl viewers were many people who rarely watch TV. "Those are scarce eyeballs," Yurukoglu says, "and the Super Bowl is your way to reach them."

The scarcity factor also explains why broadcast and cable advertising revenue largely held steady from 2014 to 2019 despite increased streaming service usage. TV networks could charge higher prices due to having fewer viewers: Ad prices were buoyed by competition for fewer eyeballs.

Yurukoglu and his colleagues used their economic model to estimate ad prices on Netflix after its 2022 launch of an ad-supported service tier. The model predicted this move would lower ad prices per viewer for the five largest TV networks by approximately 1.5% as ads appeared in more places. Networks with audiences overlapping significantly with Netflix’s would see the biggest declines in ad prices due to increased options for buying advertisements.

The researchers say their findings have implications for policymakers considering media company mergers. If Station A and Station B have overlapping audiences, merging would likely push up ad prices since companies purchasing ads would face more competition with only one station selling ads post-merger.

However, if two stations with distinct audiences merge—such as one targeting women and another targeting men—ad prices would likely remain stable since overall distinct viewership would increase post-merger.

"When it comes to antitrust questions and mergers, we usually think about how big companies are and about their market share," Gentzkow says. "But for advertising, it's key how their audiences overlap. Our findings suggest these types of economic analyses need to be done differently."