Strategic Whitelisting by an Ad-blocking Technology Provider: Market Outcomes and Welfare Implications
33 Pages Posted: 30 Mar 2016 Last revised: 19 Sep 2016
Date Written: September 18, 2016
Ad blocking technology (ABT) is seen as a threat to the advertisement based business models of content providers (CPs) on the Internet. We develop a game-theoretic model to analyze the strategic impact of ABT on CPs' profits. In particular, we investigate market outcomes when the ABT provider offers to whitelist some of the CP's advertisements, i.e., deliberately introduces an imperfect blocking technology in exchange for a share of the CP's (increased) advertisement revenues. We find that providing the ABT for free and generating revenues from whitelisting only may be more profitable for the ABT provider than if it were to sell the ABT software directly to consumers. At the same time, whitelisting yields lower total surplus than if the ABT would filter ads perfectly, which raises the question whether a "neutrality" regulation for dominant ABT providers, similar to a net neutrality regulation for Internet service providers, is warranted.
Keywords: Internet, Net Neutrality, Ad-Blocking, Whitelisting
JEL Classification: L12; L15; L19; L82; L86; M37
Suggested Citation: Suggested Citation