On the Optimality of Clickthrough Fees in Online Markets

28 Pages Posted: 25 Oct 2011

See all articles by Michael R. Baye

Michael R. Baye

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy

Xiaxun Gao

affiliation not provided to SSRN

John Morgan

University of California, Berkeley - Economic Analysis & Policy Group

Date Written: November 2011

Abstract

We study optimal fee setting decisions by a monopoly online platform connecting advertisers with potential buyers in two environments: a simple model that captures stylised features of advertising on search engines, social networks and advertisement‐supported email; and a richer model that is more relevant for ‘directed’ search at price comparison sites. While the platform can choose to charge for both impressions and clicks, we show that the platform maximises profits by using clickthrough fees exclusively. Our model offers a rationale for the evolving practice of relying purely on clickthrough fees for revenues in many online advertising markets.

Suggested Citation

Baye, Michael Roy and Gao, Xiaxun and Morgan, John, On the Optimality of Clickthrough Fees in Online Markets (November 2011). The Economic Journal, Vol. 121, Issue 556, pp. F340-F367, 2011. Available at SSRN: https://ssrn.com/abstract=1948945 or http://dx.doi.org/10.1111/j.1468-0297.2011.02468.x

Michael Roy Baye

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

Bloomington, IN 47405
United States
812-855-2779 (Phone)
812-855-3354 (Fax)

Xiaxun Gao

affiliation not provided to SSRN

No Address Available

John Morgan

University of California, Berkeley - Economic Analysis & Policy Group ( email )

Berkeley, CA 94720
United States
510-642-2669 (Phone)
810-885-5959 (Fax)

HOME PAGE: http://faculty.haas.berkeley.edu/rjmorgan/

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