Abstract

http://ssrn.com/abstract=501082
 
 

References (37)



 
 

Citations (8)



 


 



Performance-based Pricing Models in Online Advertising


Yu Jeffrey Hu


Georgia Institute of Technology - Scheller College of Business

January 14, 2004


Abstract:     
The Internet is a much more accountable and measurable medium than traditional media. The unique property of the Internet being a medium with bidirectional information flows has enabled performance-based pricing models that tie online advertising payments directly to campaign measurement data such as click-throughs and purchases. These pricing models have become increasingly popular in the online advertising industry.

This paper provides explanations as to when and how incorporating performance-based pricing models into advertising deals can be profitable. We argue that the publisher can make non-contractible efforts that may improve the effectiveness of advertising campaigns. These efforts are costly to the publisher. Therefore, performance-based pricing models can be used to give the publisher proper incentives to make its efforts.

We derive an optimal contract that maximizes the sum of the advertiser's utility and the publisher's utility, and show that key factors that influence the use of performance-based pricing models are the importance of the publisher's incremental efforts, precision of click-through measurement, and uncertainty in the product market. We also clarify issues that are being debated in the industry, such as how the importance of the advertiser's incremental efforts and existence of non-immediate purchases affect the use of performance-based pricing models.

Number of Pages in PDF File: 30

Keywords: Online advertising, pricing model, incentive, performance

working papers series


Download This Paper

Date posted: March 3, 2004  

Suggested Citation

Hu, Yu Jeffrey, Performance-based Pricing Models in Online Advertising (January 14, 2004). Available at SSRN: http://ssrn.com/abstract=501082 or http://dx.doi.org/10.2139/ssrn.501082

Contact Information

Yu Jeffrey Hu (Contact Author)
Georgia Institute of Technology - Scheller College of Business ( email )
800 West Peachtree St.
Atlanta, GA 30308
United States
Feedback to SSRN


Paper statistics
Abstract Views: 8,134
Downloads: 1,879
Download Rank: 3,647
References:  37
Citations:  8

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo8 in 0.469 seconds