The Internalization of Advertising Services: An Inter-IndustryAnalysis

The common perception appears to be that vertical integration of advertising services is more the exception than the rule in the U.S. advertising industry. This study investigates the extent of such outsourcing and examines inter-industry variation in the use of in-house rather than independent advertising agencies by U.S. advertisers. While the vast majority of large advertisers employ outside agencies, it comes as a surprise to find that when advertisers of all sizes are considered, about half operate some form of in-house agency. Internalization of advertising services is much more widespread than has hitherto been appreciated and varies widely across industries. To explain this variation, we draw on concepts from research on scale economies and transaction costs to develop a set of hypotheses which we test in cross sectional analyses of data covering 69 two digit SIC industries at two points in time, 1991 and 1999. Across industries, we find that the likelihood of internalization of advertising services decreases as the size of advertising outlays increase but increases as advertising intensity and technological intensity increase and is greater for "creative" industries.Advertising Agencies, In-House, Vertical Integration, Make or Buy

The Changing Architecture of Advertising Agencies

In contrast to other marketing activities, advertising is usually outsourced—historically, to an integrated full-service advertising agency that provides both creative and media services. Recently, major changes have occurred, specialized media shops have appeared, and large holding companies with several agencies and a separate media shop have emerged. This paper describes how firms in the current industry structure choose their agents. A theoretical section specifies the firm's decision process in obtaining the creative and media components. Conditions under which one or both could be effectively produced internally are identified. In the prevalent case when these components are outsourced, we evaluate whether they can be more efficiently produced by a bundled full-service agency or by unbundling to separate agents. An empirical section tests the theory implications with cross-sectional data on U.S. firm choices of advertising agents. The bundled full-service agency is still widely used. Firms with large advertising budgets unbundle to take advantage of media discounts obtained by market-making media shops. Internal agencies are used when firms have internal creative abilities, or have low-level requirements in both creative and media. The creative and media agencies within holding companies are found to act independently.advertising agencies, media shops, outsourcing, unbundling, double marginalization

Time-to-Sell of New Green Housing

This research explores the time-to-sell (TTS) of green real estate. We employ data on primary market transactions in six newly developed multi-story condominiums—of which three are green and three are conventionally built—located in a single neighborhood of Netanya, Israel. We find that, after addressing the potential endogeneity between unit TTS and price, the average TTS of units in green, as compared to conventional, structures is significantly shorter. Considering developers' financing cost, this shorter TTS is equivalent to an indirect price premium of 1%–5%. We also find that whenever the indirect green premium associated with TTS decreases, the green quality-adjusted price premium increases. Thus, considering both price and TTS, we estimate a total green price premium of about 5%