Interactive Advertising: The Case of Skippable Ads
Anthony Dukes (Marshall School of Business, University of Southern California), Qihong Liu (Department of Economics, University of Oklahoma), Jie Shuai (Wenlan School of Business, Zhongnan University of Economics and Law)
The skippable ad format, commonly used by online content platforms, allows viewers to see a portion of an advertiser's message before having the option to skip directly to the intended content and avoid viewing the entire ad. We develop a dynamic model of a viewer receiving incremental information from the advertiser. This model identifies conditions under which the viewer (i) skips the ad and (ii) engages with the advertiser. We then incorporate the advertising market and assess implications of skippable ads on platform's profit and advertisers' surplus. Relative to the traditional ad format, we find that there are unambiguously more advertisements and viewers on the platform with skippable ads. Under reasonable conditions, the skippable ad format is a strict Pareto improvement, which raises the surplus of advertisers and the profit of the platform. The source of the additional surplus is that skippable ads allow the viewers to use incremental information about the advertiser to make more efficient decisions about their viewing choices.
More details on Prof. Dr. Anthony Dukes can be found at: https://www.marshall.usc.edu/personnel/481. His resume can also be found attached to this mail.