Economic Analysis of Reward Advertising

Forthcoming in Productions and Operations Management

50 Pages Posted: 14 Nov 2018

See all articles by Hong Guo

Hong Guo

University of Notre Dame

Xuying Zhao

University of Notre Dame

Lin Hao

Fordham University - Gabelli School of Business

De Liu

University of Minnesota - Twin Cities - Carlson School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: September 5, 2018

Abstract

Reward advertising is an emerging monetization mechanism for app developers in which consumers choose to view ads in exchange for apps’ premium content. We provide the first economic analysis of reward advertising by studying the implications of offering reward ads, either by itself, or in conjunction with direct selling of premium content. We find that the condition for offering reward ads is surprisingly simple, and it is often optimal to offer reward ads jointly with direct selling of premium content. Interestingly, a high reward rate could decrease the number of reward ads viewed because of accelerated satiation for premium content; thus, developers need to balance the need to incentivize ad viewing and to prevent excessive accelerated satiation. The need for limiting the number of reward ads per consumer only arises when the marginal revenue of reward ads diminishes quickly. Such limit is only effective when the base ad revenue rate is not too high and when ad viewers have relatively homogenous nuisance costs. Finally, reward ads may increase or decrease consumer surplus.

Keywords: reward advertising, apps, monetization, premium content, consumer surplus

Suggested Citation

Guo, Hong and Zhao, Xuying and Hao, Lin and Liu, De, Economic Analysis of Reward Advertising (September 5, 2018). Forthcoming in Productions and Operations Management, Available at SSRN: https://ssrn.com/abstract=3283265

Hong Guo

University of Notre Dame ( email )

356 Mendoza College of Business
Notre Dame, IN 46556-5646
United States

HOME PAGE: http://www.nd.edu/~hguo

Xuying Zhao

University of Notre Dame ( email )

361 Mendoza College of Business
Notre Dame, IN 46556-5646
United States

Lin Hao

Fordham University - Gabelli School of Business ( email )

140 West 62nd Street
New York, NY 10023
United States

De Liu (Contact Author)

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

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