TITLE

Double Marginalization in Performance-Based Advertising: Implications and Solutions

AUTHOR(S)
Dellarocas, Chrysanthos
PUB. DATE
June 2012
SOURCE
Management Science;Jun2012, Vol. 58 Issue 6, p1178
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
An important current trend in advertising is the replacement of traditional pay-per-exposure (pay-per-impression)pricing models with performance-based mechanisms in which advertisers pay only for measurable actions by consumers. Such pay-per-action (PPA) mechanisms are becoming the predominant method of selling advertising on the Internet. Well-known examples include pay-per-click, pay-per-call, and pay-per-sale. This work highlights an important, and hitherto unrecognized, side effect of PPA advertising. I find that, if the prices of advertised goods are endogenously determined by advertisers to maximize profits net of advertising expenses, PPA mechanisms induce firms to distort the prices of their goods (usually upward) relative to prices that would maximize profits in settings where advertising is sold under pay-per-exposure methods. Upward price distortions reduce both consumer surplus and the joint publisher-advertiser profit, leading to a net reduction in social welfare. They persist in current auction-based PPA mechanisms, such as the ones used by Google,Yahoo!, and Microsoft. In the latter settings they also reduce publisher revenues relative to pay-per-exposure methods. I show that these phenomena constitute a form of double marginalization and discuss a numberof enhancements to today's PPA mechanisms that restore equilibrium pricing of advertised goods to efficient levels, improving both consumer surplus as well as the publisher's expected profits.
ACCESSION #
84304543

 

Related Articles

  • How marketers are choosing their digital options. Bernstein, Paula // Adweek;5/14/2012, Vol. 53 Issue 19, pD1 

    The article discusses a shift in the advertising industry towards more digitally-geared campaigns. Topics include a discussion of what it means that Procter & Gamble, the world's largest advertiser, is shifting towards digital campaigns, the trends in spending that suggest digital advertising...

  • Why creativity is now a brand's best weapon online. Smith, Philip // Marketing (00253650);5/16/2012, p19 

    The author explains that the trend in Internet advertising has moved from brand-building to direct-response, which is forcing ads to become interactive and creative in order to stay relevant.

  • Brand barometer.  // Marketing (00253650);5/16/2012, p16 

    The article discusses the success of various viral marketing and social media efforts, including the trailer for the video game "Call of Duty: Black Ops 2," the first words of Duracell battery mascot the Duracell Bunny, and customers' concerns about British car insurance companies.

  • Will "Do Not Track" destroy online ads?: YES. Ingis, Stuart // Direct Marketing News;8/1/2012, p20 

    The author comments on the impact of the Do Not Tract (DNT) legislation on online advertising in the U.S., stating on its ability to fuel baseless fears about online privacy and to imply that consumers should be able to stop all data collection.

  • Will "Do Not Track" destroy online ads?: NO. Kats, Ed // Direct Marketing News;8/1/2012, p20 

    The author comments on the impact of the Do Not Track legislation on online advertising in the U.S., stating that the legislation will establish numerous barriers for advertisers, brands, and agencies.

  • +Direct Marketing News DECISION.  // Direct Marketing News;8/1/2012, p20 

    The article discusses the potential impact of the enactment of Do Not Track legislation on online advertising industry in the U.S.

  • READER RESPONSE: Will "Do Not Track" destroy online ads? Readers respond to the August Gloves Off question. Montgomery, John; Radigan, Michael; Minichini, Steve // Direct Marketing News;8/1/2012, p21 

    The author comments on the potential impact of the enactment of Do Not Track legislation on online advertising industry in the U.S., stating that its implementation will be unfavorable for the industry and consumers.

  • BLOCK EVERY WEB ADVERT. Collins, Barry; Williams, Wayne // Web User;6/4/2014, Issue 346, p42 

    The article focuses on the issue to combat the annoying and persistent advertisements on websites.

  • Did Facebook's Free Basics campaign pay off?  // Exchange4media.com;1/7/2016, p1 

    The article examines the effectiveness of the advertising campaign by social media site Facebook as of January 2016, which includes print, television (TV), digital, and out-of-home (OOH).

Share

Read the Article

Courtesy of THE LIBRARY OF VIRGINIA

Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics