In-Image Advertising

The heart of this paper is a model of social interaction in which players use costumes and other visible consumption goods as signals about the identity of other players. If these signals are informative enough, players use them to condition their social interaction. Importantly, accurate signals are mutually beneficial. This game is then wrapped in another in which players choose their costumes. There are many equilibria in this expanded game, some of which allow individuals to perfectly signal their type in all social interactions, and others of which do not. The perfect signaling equilibria Pareto dominate the others, but since there are many of them, the players face a difficult coordination problem. In this paper we explore the hypothesis that image advertising solves this coordination problem. Two implications of our theory are that image advertising campaigns are necessarily massive, and that the targeted audience for the advertising campaign is necessarily larger than the targeted group of buyers of the advertised product. We offer anecdotal evidence in support of both implications.