36 Pages Posted: 18 Jun 2014 Last revised: 13 Jun 2015
Date Written: June 13, 2015
While it is common that viewers want to avoid ads, it is rather counterintuitive why platforms may help viewers do so by displaying skippable ads (e.g., YouTube's TrueView ads). We show that trueview ads can actually improve platform profit relative to traditional ads. Trueview ads always raise viewer surplus, and induce advertisers to invest in effort to reduce viewers' nuisance costs of watching their ads. The equilibrium effort level of an advertiser increases with its willingness to pay for viewer access. These results have important managerial and policy implications. We also consider two types of hybrid ads: mixed ads (offering a mixture of traditional and trueview ads for advertisers to self-select) and proportion-skipping ads (allowing viewers to skip a fixed proportion of the ads). Relative to pure ads, we find that hybrid ads raise platform profit and we conjecture that they have the potential to benefit viewers and advertisers simultaneously (Pareto improvement).
Keywords: Two-sided market; Media market; Advertising; Trueview ads
JEL Classification: D42, L12, M37
Suggested Citation: Suggested Citation
Liu, Qihong and Shuai, Jie, TrueView Ads (June 13, 2015). Available at SSRN: https://ssrn.com/abstract=2451312