Ad-Blockers: Extortionists or Digital Age Robin Hoods?

Abstract

As a way to mitigate the impact of intrusive online advertising on users, ad-blockers have risen in prominence over the past few years. Initially dismissed by the online advertising industry as inconsequential, ad-blockers have evolved from a mere plugin tool on browsers to full-fledged platforms that derive benefits from certifying quality of advertisers and reducing disutility of users. However, the rise of ad-blocking has prompted discussions on the validity of its price structure and its impact on quality of advertising online. Many accuse ad-blockers of using an extortion-based business model, built on fleecing advertisers. Still others question whether ad-blocking will actually benefit online advertising quality. In this paper, we investigate these issues using a game-theoretic model consisting of four agents - advertisers, users, content provider and an ad-blocker. Through our model, we provide answers to questions related to the price structure of ad-blocker platforms, platform membership trends, quality of content provided and implications of similar platforms on social welfare.

Keywords: advertising, internet, online, google, adblocker

JEL Classification: M15, C72, D40