Pricing display ads and contextual ads: Competition, acquisition, and investment

Authors:
Yung-Ming Li;Jhih-Hua Jhang-Li
Affiliations:
Institute of Information Management, National Chiao Tung University, Management Building 2, 1001 Ta Hsueh Road, Hsinchu 300, Taiwan;Institute of Information Management, National Chiao Tung University, Management Building 2, 1001 Ta Hsueh Road, Hsinchu 300, Taiwan
Venue:
Electronic Commerce Research and Applications
Year:
2009

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Abstract

Most websites are simultaneously supported by display advertising and contextual advertising. In this paper, we develop an economic model to examine the profitability of these two ad types in both a monopolistic market and duopolistic market, identifying the influence of impression benefit and click benefit. We find that in the duopolistic market a rival channel's professional ability to enhance a visitor's impression is beneficial to the channel offering contextual advertising. We also find that the strength of a search engine is limited in the duopolistic market; therefore, acquisition becomes a prime strategy to reveal the value of contextual advertising.