Economics of ad-blocking: An analysis of customer incentivization and whitelisting content provider models

Online content providers (or publishers) sell spaces on their web pages to display advertisements (ads). These ads generate revenue for websites, but may cause discomfort among customers. In this paper, we analyse customers’ decisions between two models that allow them to block ads on the publisher’s website: (i) Customer incentivization model, where customers use an ad-blocking browser that blocks ads on the website, but also rewards customers if they choose to see some ads, and (ii) Whitelisting content provider model, where customers use a browser with an installed ad-blocker that blocks ads on the website, but also earns some revenue by allowing limited ads on the website. In our model setup, we characterise the market structure, ad-intensity, and revenue sharing decisions in Nash equilibrium. We find that if customers face low ad-disutility, then only the customer incentivization-based browser exists in the market. However, high ad-disutility leads to the coexistence of both browsers. We also find that the increase in customers’ ad-disutility may lead to an increase or a decrease in revenue sharing decisions under both browsers.