The Beneficial Effects of Ad Blockers

53 Pages Posted: 11 Dec 2017  

Stylianos Despotakis

Carnegie Mellon University - David A. Tepper School of Business

R. Ravi

Carnegie Mellon University - David A. Tepper School of Business

Kannan Srinivasan

Carnegie Mellon University - David A. Tepper School of Business

Date Written: November 28, 2017

Abstract

While online advertising is the lifeline of many internet content platforms, the usage of ad blockers has surged in recent years presenting a challenge to platforms dependent on ad revenue. Using a simple analytical model with two competing platforms, we show that the presence of ad blockers can actually benefit platforms. In particular, there are conditions under which the optimal equilibrium strategy for the platforms is to allow the use of ad blockers (rather than using an adblock wall, or charging a fee for viewing ad-free content). The key insight is that allowing ad blockers serves to differentiate platform users based on their disutility to viewing ads. This allows platforms to increase their ad intensity on those that do not use the ad blockers and achieve higher returns than in a world without ad blockers. We show robustness of these results when we allow a larger combination of platform strategies, as well as by explaining how ad whitelisting schemes offered by modern ad blockers can add value. Our study provides general guidelines for what strategy a platform should follow based on the heterogeneity in the ad sensitivity of their user base.

Keywords: ad blocking, ad sensitivity, ad intensity, competitive strategy, advertising, game theory

JEL Classification: M37, C72

Suggested Citation

Despotakis, Stylianos and Ravi, R. and Srinivasan, Kannan, The Beneficial Effects of Ad Blockers (November 28, 2017). Available at SSRN: https://ssrn.com/abstract=3083119 or http://dx.doi.org/10.2139/ssrn.3083119

Stylianos Despotakis (Contact Author)

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

R. Ravi

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

Kannan Srinivasan

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

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