Ads as cues (with G. Burro, N. Gennaioli, G. Nacamulli, and A. Shleifer)

Why do we see both advertising and powerful consumer habits for well-known, intrinsically similar brands? We start from the idea that a consumer is more likely to demand a good if she recalls pleasurable experiences with it. In turn, recall is stronger for frequently consumed goods and those similar to cues. Our model yields context-dependent habits where ads work as memory cues. It predicts ads are more effective for habitual consumers, and exhibit spillovers that are stronger for goods with similar ads. NielsenIQ consumer and advertising data supports these predictions in 20 undifferentiated, highly advertised product categories.