Ad Networks and Consumer Tracking

Abstract

We study the role of ad networks in the online advertising market. Our baseline model considers two publishers that can outsource the sale of their ad inventories to an ad network, in a market where consumers and advertisers multi-home. The ad network increases total advertising revenue by tracking consumers across outlets and reduces competition between publishers by centralizing the sale of ads. Consequently, outsourcing to the ad network is beneficial to the publishers, but may penalize the advertisers. We show that the ad network's ability to track consumers may either expand or reduce the provision of ads, depending on consumers' preferences for the publishers and how advertisers use tracking information. Specifically, tracking is more likely to expand (resp. reduce) the provision of ads when consumers' preferences for the publishers are positively (resp. negatively) correlated. Tracking is also more likely to expand (resp. reduce) the provision of ads when advertisers use tracking information to cap the frequency of impressions (resp. target specific consumers). Furthermore, we study the implications of consumers' choice to block tracking. Generally, blocking generates a negative impact on the advertising industry, by making the allocation of ads less effective. Blocking also entails an externality on consumers, which is negative when tracking reduces the provision of ads. Given these conditions, regulatory restrictions on tracking may reduce consumer surplus as well as advertising revenue. These findings contrast with the presumption that regulation should make it easier for consumers to avoid tracking. We propose further extensions, including competing ad networks, more than two publishers and networks that do not sell ads, but only tracking information to the advertisers.

Intermediaries in the Online Advertising Market

“…Our analysis also contributes to the literature on the effects of privacy policy in online advertising markets Tucker, 2011, 2012;Acquisti et al, 2016). Recent work in this literature points to the externalities related to consumers disclosing information that enables platforms to profile other consumers (Acemoglu et al, 2019;Bergemann et al, 2019;Choi et al, 2019;D'Annunzio and Russo, 2020). Empirical papers have studied the response by consumers, platforms and advertisers to regulation such as the GDPR (Peukert et al, 2022;Jia et al, 2021;Johnson et al, 2020).…”

Video Platforms’ Value-Added Service Investments and Pricing Strategies for Advertisers

“…A viewer located at x on the unit interval incurs a transportation cost t|x − x i | when joining platform i, where t is the transportation cost per distance. A viewer also suffers a negative inter-group network externality aM ij brought by advertisers [30][31][32]. The strength of the inter-group network externality brought by advertisers, a, represents the disutility that a viewer suffers from each advertisement.…”

Follow the Money: Online Piracy and Self-Regulation in the Advertising Industry

“…A growing literature on the economics of online advertising has started to analyze the industrial organization of the industry. For example, theoretical work has studied the incentives of publishers to collect and share information about consumers (de Cornière and de Nijs, 2016; Athey et al, 2018), and the welfare implications of consumer opt-out policies (D'Annunzio and Russo, 2017). Few papers study the externalities that online advertising can have on the incentive to supply content, suggesting that advertising is positively related to content quality (Sun and Zhu, 2013;Shiller et al, 2018).…”