The Beneficial Effects of Ad Blockers
Stylianos Despotakis, R. Ravi, and Kannan Srinivasan
Published in Management Science, June 2020
Given that advertising is the main source of revenue for a lot of websites today, it is no surprise that the recent rise of ad blocking worries many online publishers who are dependent on ad revenue. In this paper, Dr Despotakis at the Department of Marketing, and co-authors study the effects of ad blockers with a focus on the potential benefits they might have, not only for users, but for online platforms as well.
“Surprisingly, by studying a game-theoretic model, we find that sometimes it is actually to the benefit of platforms to allow ad blockers,” says Despotakis.
“Even more so, there are certain situations where the existence of ad blockers can make the platforms better off compared to a world without ad blockers.”
To deal with ad blockers, platforms take one (or a combination) of three main approaches. They either use an adblock wall that prevents adblock users from accessing the site unless they disable their ad blocker; or they allow adblock usage on their site; or they implement a paywall where people have to pay a fee to access the content of the (often ad-free) site.
A key element in the framework is the heterogeneity in the ad sensitivity of the user base of a platform. Of course, if everyone is using an ad blocker, then allowing ad blockers cannot be an optimal strategy as it eliminates all the ad revenue of a platform. However, given the right balance between very ad-sensitive users with ad blockers and people without ad blockers who do not mind ads, allowing ad blockers can be optimal. This is because allowing ad blockers (and effectively removing ad-sensitive users from the market) can soften the competition between platforms, which can result in increased revenue.
Based on the findings of this work, the paper also provides some general guidelines regarding the advertising strategies platforms should implement based on the ad sensitivity of their user base. These strategies can lead to a more efficient advertising market which can in turn improve the outcomes both for users and platforms.