Strategic Implications of Ad-Blockers and Limited Ad-Blocking

Abstract

Ad-blockers enable consumers to block ads on websites. While ad-blockers began as user-oriented initiatives promising to block all ads, many now allow limited display of ads. Much of the ensuing debate has questioned the role and intent of the ad-blocker, viewing ad-blocking as a zero-sum game between consumers and the website publisher. We show limited ad-blocking (LAB) can transform ad-blocking to a win-win for all. In fact, even a user-oriented ad-blocker may offer LAB, while also benefiting the publisher and leading to better website content than in the absence of ad-blocking. Specifically, LAB can be used to incentivize content provision in two distinct ways: not just by enabling a publisher monetize website visits from ad-blocker users, but also by limiting the publisher’s ability to attract ad-blocker users if website content quality is low; since, by not blocking all ads, LAB can make a low-quality website less attractive for ad-blocker users. From the publisher’s perspective, although the publisher faces pressure to lower its website ad intensity to counter ad-blocking, LAB can emerge as an indirect means to discriminate ad intensity across consumers since they sort themselves according to their tolerance for ads through adopting the ad-blocker. We show beneficial discrimination can occur if consumers with higher valuation of content quality also find ads more disruptive and are less tolerant of ads. Interestingly, the ad-blocker may be more widely adopted when it employs LAB than when it does not. Furthermore, even a user-oriented ad-blocker may charge its users a fee.