Abstract
This study investigates the dual relationship between digital advertising effectiveness and market concentration, focusing specifically on whether targeted digital advertising fosters the growth of small and medium-sized enterprises (SMEs) or reinforces incumbent dominance. Exploiting quasi-exogenous policy and platform architecture shocks—most notably the implementation of Apple's App Tracking Transparency (ATT) framework and staggered rollouts of regional privacy regulations—we construct an econometric panel dataset tracking 4,280 digital-first retail SMEs alongside industry-level concentration metrics from 2018 to 2023. Employing a generalized difference-in-differences framework integrated with an instrumental variable strategy, we find that algorithmic targeting capability significantly boosts small business revenue elasticity with respect to ad spend (β = 0.284, p < 0.01). However, this positive growth effect is heavily asymmetric: in sectors characterized by high baseline market concentration (Herfindahl-Hirschman Index > 2,500), the marginal return on targeted ad spend for SMEs diminishes rapidly due to ad auction bidding wars dominated by well-capitalized incumbents. The privacy-induced attenuation of targeting efficiency disproportionately elevated customer acquisition costs (CAC) for micro-enterprises by 34.2%, while large incumbents absorbed costs via first-party data advantages. Our findings provide empirical evidence that while programmatic targeting serves as a critical growth engine for entrants, digital platform architecture and auction dynamics can inadvertently exacerbate industrial consolidation, presenting nuanced implications for antitrust enforcement, digital privacy policy, and strategic marketing allocation.
