Advertising Effects in Presidential Elections Brett R

Vol. 32, No. 1, January–February 2013, pp. 19–35 ISSN 0732-2399 (print) ISSN 1526-548X (online) http://dx.doi.org/10.1287/mksc.1120.0745 © 2013 INFORMS Advertising Effects in Presidential Elections Brett R. Gordon Columbia Business School, Columbia University, New York, New York 10027, [email protected] Wesley R. Hartmann Stanford Graduate School of Business, Stanford University, Stanford, California 94305, [email protected] residential elections provide both an important context in which to study advertising and a setting that Pmitigates the challenges of dynamics and endogeneity. We use the 2000 and 2004 general elections to analyze the effect of market-level advertising on county-level vote shares. The results indicate significant positive effects of advertising exposures. Both instrumental variables and fixed effects alter the ad coefficient. Advertising elasticities are smaller than are typical for branded goods yet significant enough to shift election outcomes. For example, if advertising were set to zero and all other factors held constant, three states’ electoral votes would have changed parties in 2000. Given the narrow margin of victory in 2000, this shift would have resulted in a different president. Key words: advertising; politics; instrumental variables; presidential elections History: Received: June 15, 2011; accepted: August 21, 2012; Preyas Desai served as the editor-in-chief and Miguel Villas-Boas served as associate editor for this article. Published online in Articles in Advance November 30, 2012. 1. Introduction We examine advertising effectiveness in presiden- Advertising is ubiquitous. In 2008, firms spent tial elections, potentially one of the most important roughly $65 billion on television advertising for a contexts in which to study advertising. Advertising range of products.1 The prevalence of advertising studies typically focus on brands seeking to influence suggests that it must be influential. Consequently, individual consumers. In contrast, an election aggre- the study of advertising often turns to understand- gates the decisions of many into a single outcome ing what it affects and why: economists and mar- with far-reaching consequences. The growing volume keters debate whether advertising is informative or of political advertising, and its possible effects on persuasive; marketers assess its effects on interme- voters’ choices, has contributed to a growing debate diate measures such as brand recall; and political about campaign fundraising and spending limits in scientists wonder if negative advertisements depress elections (Soberman and Sadoulet 2007, Centre for voter turnout.2 Nevertheless, conclusive evidence Law and Democracy 2012, Economist 2012). Despite on the efficacy of advertising is still quite elusive. these concerns, researchers still debate the evidence Many papers lack any source of exogenous variation, on advertising effects in elections (see Goldstein and and those studies with experimental variation have Ridout 2004, Gordon et al. 2012 for reviews). trouble detecting robust effects.3 Two common challenges in estimating the effects of advertising are econometric endogeneity and 1 See AdWeek (2008). disentangling the effects of past and present 2 For work analyzing whether advertising is informative or persua- advertising. First, as with most empirical questions, sive, see, for example, Nelson (1974), Ackerberg (2001), Narayanan a correlation between unobservables and advertising and Manchanda (2009), Clark et al. (2009), and Anand and Shachar creates an endogeneity problem in isolating causal (2011). For persuasiveness in political contexts, see Huber and 4 Arceneaux (2007) and Lovett and Peress (2010). Draganska and effect. Potential instruments are variables that enter Klapper (2011) incorporate the effects of brand recall through advertising on demand, and Kanetkar et al. (1992) and Mela advertising. Eastlack and Rao (1989), reporting on the results of et al. (1997) measure the effects of advertising on price sensitiv- field experiments in the 1970s by the Campbell Soup Company, ity. Shachar (2009) suggests that political advertising only affects find advertising budget levels had little effect on sales of estab- turnout. Ansolabehere et al. (1999), Wattenberg and Brians (1999), lished brands. In the context of Internet advertising, the experimen- and Freedman and Goldstein (1999) investigate the effects of neg- tal variation alone in Lewis and Reiley (2011) was unable to find ative advertisements on voter turnout; see Lau et al. (2007) for a significant positive advertising effects. meta-analysis on negative advertising effects. 4 Villas-Boas and Winer (1999) provide a detailed discussion of 3 Lodish et al. (1995) conduct a meta-analysis of split-cable tele- endogeneity problems in discrete choice models commonly used in vision experiments and do not find conclusive positive effects of marketing applications. 19 Gordon and Hartmann: Advertising Effects in Presidential Elections 20 Marketing Science 32(1), pp. 19–35, © 2013 INFORMS the decision process of advertisers, but not that of for estimating advertising’s efficacy. To measure the the targets to be influenced. Dubé and Manchanda advertising effect as cleanly as possible, we include (2005) and Doganoglu and Klapper (2006) use the an extensive set of fixed effects at the market-party current price of advertising, which is excluded from level. Focusing on within-market variation removes demand just as marginal costs are excluded when the worry that unobservables in the candidate choice instrumenting for a product’s price. A problem with equation might be cross-sectionally correlated with contemporaneous advertising prices is that advertis- the advertising price instrument. Such a correlation ers may not be price takers; large advertisers could could exist because major metropolitan areas have influence the market-clearing price of advertising, higher advertising prices and tend to lean Democrat. violating the exogeneity requirement for an instru- The fixed effects shift inference to how within-market ment. For example, Procter & Gamble’s multibillion- changes in advertising prices between two elections dollar advertising budget gives the company lever- indirectly affect within-market changes in advertis- age to negotiate favorable advertising rates (Guardian ing levels and vote shares. Furthermore, by pooling 2001). Similarly, reports in the popular press indicate candidate-share observations across counties and in that candidates’ demand for political advertisements, two elections, we observe 9,576 advertising exposures whether in presidential or midterm elections, causes and resulting vote shares. advertising rates to increase, with the effects being The estimates show a robust positive advertising more pronounced in competitive markets (Washing- effect across a number of specifications, including ton Times 2010, Cincinnati Enquirer 2004, San Francisco numerous exogenous control variables and their inter- Chronicle 2012). To address this issue, we take advan- actions with political party dummies. Advertising tage of the fact that no elections are held during odd elasticities are approximately 0.03, which is smaller years, and we use the prior year’s advertising prices than estimates typically found in consumer packaged as cost instruments that are free of political campaign goods and lower than roughly comparable estimates effects. in Huber and Arceneaux (2007). The second challenge is that advertising effects To provide a better metric for the role and impor- are typically spread over long horizons and multiple tance of advertising on state-level outcomes, we choice occasions. This fact may help explain why the consider two counterfactuals that eliminate all adver- few studies that causally identify advertising effects tising. One allows turnout and candidate shares to more often find positive effects for new products (e.g., freely adjust with zero advertising, and the second Ackerberg 2001, Lodish et al. 1995). Much of this fixes turnout at observed levels to isolate the per- literature, motivated in part by Nerlove and Arrow suasive effects of advertising implied by our esti- (1962), incorporates latent advertising stock variables mates. In the first zero-advertising counterfactual, we that depreciate and are reinvested over long horizons find that three states switched sides in 2000 (two to (Naik et al. 1998, Dubé et al. 2005, Rutz and Bucklin Gore and one to Bush) and one switched in 2004 (to 2011). Fortunately, the political context concentrates Bush). The shift in 2000 would have been sufficient for both the choices and the spending. Choices are fully Gore to overtake Bush in electoral votes. The coun- concentrated on Election Day. Spending in presiden- terfactual that holds turnout fixed produces a simi- tial general elections is concentrated in the short post- lar outcome but without Bush gaining any states in primary period leading up to Election Day, thereby 2000. We note that these results should not be inter- creating a setting where advertising can reasonably be preted as strict predictions, because the counterfactu- aggregated into a single variable.5 als require all other factors to be held fixed. The goal Thus presidential elections provide a unique setting of this exercise is merely to highlight that advertis- that is well suited for identifying the causal effects ing’s causal effects are great enough to shift the elec- of advertising. We use advertising data from the tion outcome and that they can be

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