IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v66y2020i11p5040-5058.html
   My bibliography  Save this article

Ad Networks and Consumer Tracking

Author

Listed:
  • Anna D’Annunzio

    (Toulouse Business School, 31068 Toulouse, Cedex 7, France;)

  • Antonio Russo

    (Loughborough University, School of Business and Economics, LE11 3TU Loughborough, United Kingdom; ETH Zurich, 8092 Zurich, Switzerland)

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 benefits 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 (respectively, reduce) the provision of ads when consumers’ preferences for the publishers are positively (respectively, negatively) correlated. Tracking is also more likely to expand (respectively, reduce) the provision of ads when advertisers use tracking information to cap the frequency of impressions (respectively, target specific consumers). Furthermore, we study the implications of consumers’ choice to block tracking. Generally, blocking negatively impacts the advertising industry by making ad allocation 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.

Suggested Citation

  • Anna D’Annunzio & Antonio Russo, 2020. "Ad Networks and Consumer Tracking," Management Science, INFORMS, vol. 66(11), pages 5040-5058, November.
  • Handle: RePEc:inm:ormnsc:v:66:y:2020:i:11:p:5040-5058
    DOI: 10.1287/mnsc.2019.3481
    as

    Download full text from publisher

    File URL: https://doi.org/10.1287/mnsc.2019.3481
    Download Restriction: no

    File URL: https://libkey.io/10.1287/mnsc.2019.3481?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Alessandro Acquisti & Curtis Taylor & Liad Wagman, 2016. "The Economics of Privacy," Journal of Economic Literature, American Economic Association, vol. 54(2), pages 442-492, June.
    2. Il-Horn Hann & Kai-Lung Hui & Sang-Yong Tom Lee & Ivan Png, 2005. "Consumer Privacy and Marketing Avoidance," Industrial Organization 0503009, University Library of Munich, Germany.
    3. Belleflamme, Paul & Vergote, Wouter, 2016. "Monopoly price discrimination and privacy: The hidden cost of hiding," Economics Letters, Elsevier, vol. 149(C), pages 141-144.
    4. Alexandre Cornière & Greg Taylor, 2014. "Integration and search engine bias," RAND Journal of Economics, RAND Corporation, vol. 45(3), pages 576-597, September.
    5. Rodrigo Montes & Wilfried Sand-Zantman & Tommaso Valletti, 2019. "The Value of Personal Information in Online Markets with Endogenous Privacy," Management Science, INFORMS, vol. 65(3), pages 1342-1362, March.
    6. Attila Ambrus & Emilio Calvano & Markus Reisinger, 2016. "Either or Both Competition: A "Two-Sided" Theory of Advertising with Overlapping Viewerships," American Economic Journal: Microeconomics, American Economic Association, vol. 8(3), pages 189-222, August.
    7. Simon P. Anderson & Stephen Coate, 2005. "Market Provision of Broadcasting: A Welfare Analysis," Review of Economic Studies, Oxford University Press, vol. 72(4), pages 947-972.
    8. Avi Goldfarb & Catherine Tucker, 2011. "Online Display Advertising: Targeting and Obtrusiveness," Marketing Science, INFORMS, vol. 30(3), pages 389-404, 05-06.
    9. Dirk Bergemann & Alessandro Bonatti, 2015. "Selling Cookies," American Economic Journal: Microeconomics, American Economic Association, vol. 7(3), pages 259-294, August.
    10. Claude Crampes & Carole Haritchabalet & Bruno Jullien, 2009. "Advertising, Competition And Entry In Media Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 57(1), pages 7-31, March.
    11. Ron Berman, 2018. "Beyond the Last Touch: Attribution in Online Advertising," Marketing Science, INFORMS, vol. 37(5), pages 771-792, September.
    12. Avi Goldfarb & Catherine E. Tucker, 2011. "Privacy Regulation and Online Advertising," Management Science, INFORMS, vol. 57(1), pages 57-71, January.
    13. Kind, Hans Jarle & Nilssen, Tore & Sørgard, Lars, 2016. "Inter-firm price coordination in a two-sided market," International Journal of Industrial Organization, Elsevier, vol. 44(C), pages 101-112.
    14. Justin P. Johnson, 2013. "Targeted advertising and advertising avoidance," RAND Journal of Economics, RAND Corporation, vol. 44(1), pages 128-144, March.
    15. Ramon Casadesus-Masanell & Andres Hervas-Drane, 2015. "Competing with Privacy," Management Science, INFORMS, vol. 61(1), pages 229-246, January.
    16. George, Lisa M. & Hogendorn, Christiaan, 2012. "Aggregators, search and the economics of new media institutions," Information Economics and Policy, Elsevier, vol. 24(1), pages 40-51.
    17. Seabright,Paul & von Hagen,Jürgen (ed.), 2007. "The Economic Regulation of Broadcasting Markets," Cambridge Books, Cambridge University Press, number 9780521874052.
    18. R. H. Coase, 2013. "The Problem of Social Cost," Journal of Law and Economics, University of Chicago Press, vol. 56(4), pages 837-877.
    19. Emilio Calvano & Bruno Jullien, 2012. "Issues in Online Advertising and Competition Policy: A Two-sided Market Perspective," Chapters, in: Joseph E. Harrington Jr & Yannis Katsoulacos (ed.), Recent Advances in the Analysis of Competition Policy and Regulation, chapter 9, Edward Elgar Publishing.
    20. Alexandre de Cornière & Romain de Nijs, 2016. "Online advertising and privacy," RAND Journal of Economics, RAND Corporation, vol. 47(1), pages 48-72, February.
    21. Rodrigo Montes & Wilfried Sand-Zantman & Tommaso Valletti, 2015. "The Value of Personal Information in Markets with Endogenous Privacy," CEIS Research Paper 352, Tor Vergata University, CEIS, revised 05 Aug 2015.
    22. Jonathan Levin & Paul Milgrom, 2010. "Online Advertising: Heterogeneity and Conflation in Market Design," American Economic Review, American Economic Association, vol. 100(2), pages 603-607, May.
    23. Susan Athey & Emilio Calvano & Joshua S. Gans, 2014. "The Impact of Consumer Multi-homing on Advertising Markets and Media Competition," CSEF Working Papers 379, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 27 Apr 2016.
    24. Susan Athey & Emilio Calvano & Joshua S. Gans, 2018. "The Impact of Consumer Multi-homing on Advertising Markets and Media Competition," Management Science, INFORMS, vol. 64(4), pages 1574-1590, April.
    25. Mark Armstrong & Robert Porter (ed.), 2007. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 3, number 1.
    26. Avi Goldfarb & Catherine Tucker, 2011. "Rejoinder--Implications of "Online Display Advertising: Targeting and Obtrusiveness"," Marketing Science, INFORMS, vol. 30(3), pages 413-415, 05-06.
    27. B. Douglas Bernheim & Michael D. Whinston, 1985. "Common Marketing Agency as a Device for Facilitating Collusion," RAND Journal of Economics, The RAND Corporation, vol. 16(2), pages 269-281, Summer.
    28. Joseph E. Harrington Jr & Yannis Katsoulacos (ed.), 2012. "Recent Advances in the Analysis of Competition Policy and Regulation," Books, Edward Elgar Publishing, number 14933.
    29. Simon P. Anderson & Joshua S. Gans, 2011. "Platform Siphoning: Ad-Avoidance and Media Content," American Economic Journal: Microeconomics, American Economic Association, vol. 3(4), pages 1-34, November.
    30. Peitz, Martin & Valletti, Tommaso M., 2008. "Content and advertising in the media: Pay-tv versus free-to-air," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 949-965, July.
    31. Seabright,Paul & von Hagen,Jürgen (ed.), 2007. "The Economic Regulation of Broadcasting Markets," Cambridge Books, Cambridge University Press, number 9780521696340, October.
    32. Avi Goldfarb & Catherine Tucker, 2012. "Shifts in Privacy Concerns," American Economic Review, American Economic Association, vol. 102(3), pages 349-353, May.
    33. James Campbell & Avi Goldfarb & Catherine Tucker, 2015. "Privacy Regulation and Market Structure," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 24(1), pages 47-73, March.
    34. Dirk Bergemann & Alessandro Bonatti, 2011. "Targeting in advertising markets: implications for offline versus online media," RAND Journal of Economics, RAND Corporation, vol. 42(3), pages 417-443, September.
    35. Kireyev, Pavel & Pauwels, Koen & Gupta, Sunil, 2016. "Do display ads influence search? Attribution and dynamics in online advertising," International Journal of Research in Marketing, Elsevier, vol. 33(3), pages 475-490.
    36. Nicky J. Welton & Howard H. Z. Thom, 2015. "Value of Information," Medical Decision Making, , vol. 35(5), pages 564-566, July.
    37. Rodrigo Montes & Wilfried Sand-Zantman & Tommaso Valletti, 2015. "The Value of Personal Information in Markets with Endogenous Privacy," CEIS Research Paper 352, Tor Vergata University, CEIS, revised 05 Aug 2015.
    38. Alexandre de Corniere & Romain De Nijs, 2013. "Online Advertising and Privacy," Economics Series Working Papers 650, University of Oxford, Department of Economics.
    39. Vincent Conitzer & Curtis R. Taylor & Liad Wagman, 2012. "Hide and Seek: Costly Consumer Privacy in a Market with Repeat Purchases," Marketing Science, INFORMS, vol. 31(2), pages 277-292, March.
    40. Il-Horn Hann & Kai-Lung Hui & Sang-Yong T. Lee & Ivan P. L. Png, 2008. "Consumer Privacy and Marketing Avoidance: A Static Model," Management Science, INFORMS, vol. 54(6), pages 1094-1103, June.
    41. Claude Crampes & Carole Haritchabalet & Bruno Jullien, 2009. "Advertising, Competition And Entry In Media Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 57(1), pages 7-31, March.
    42. Susan Athey & Joshua S. Gans, 2010. "The Impact of Targeting Technology on Advertising Markets and Media Competition," American Economic Review, American Economic Association, vol. 100(2), pages 608-613, May.
    43. Bagwell, Kyle, 2007. "The Economic Analysis of Advertising," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 28, pages 1701-1844, Elsevier.
    44. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
    45. Tucker, Catherine E., 2012. "The economics of advertising and privacy," International Journal of Industrial Organization, Elsevier, vol. 30(3), pages 326-329.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Batikas, Michail & Claussen, Jörg & Peukert, Christian, 2019. "Follow the money: Online piracy and self-regulation in the advertising industry," International Journal of Industrial Organization, Elsevier, vol. 65(C), pages 121-151.
    2. Evensen, Charlotte Bjørnhaug & Haugen, Atle, 2021. "The impact of targeting technologies and consumer multi-homing on digital platform competition," Discussion Paper Series in Economics 13/2021, Norwegian School of Economics, Department of Economics.
    3. Luca Sandrini, 2023. "Price vs Market Share with Royalty Licensing: Incomplete Adoption of a Superior Technology with Heterogeneous Firms," Discussion Papers 2302, Budapest University of Technology and Economics, Quantitative Social and Management Sciences.
    4. Gang Liu & Fengyue An, 2021. "Video Platforms’ Value-Added Service Investments and Pricing Strategies for Advertisers," Sustainability, MDPI, vol. 13(24), pages 1-24, December.
    5. Jeon, Doh-Shin & Yan, Jun, 2020. "Data, Targeted Advertising and Quality of Journalism: The Case of Accelerated Mobile Page (AMP)," TSE Working Papers 20-1171, Toulouse School of Economics (TSE), revised Apr 2022.
    6. Hildebrandt, Christian & Arnold, René, 2018. "Marktbeobachtung in der digitalen Wirtschaft – Ein Modell zur Analyse von Online-Plattformen," WIK Discussion Papers 427, WIK Wissenschaftliches Institut für Infrastruktur und Kommunikationsdienste GmbH.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Peitz, Martin & Reisinger, Markus, 2014. "The Economics of Internet Media," Working Papers 14-23, University of Mannheim, Department of Economics.
    2. Morlok, Tina & Matt, Christian & Hess, Thomas, 2017. "Privatheitsforschung in den Wirtschaftswissenschaften: Entwicklung, Stand und Perspektiven," Working Papers 1/2017, University of Munich, Munich School of Management, Institute for Information Systems and New Media.
    3. Flavio Pino, 2022. "The microeconomics of data – a survey," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 49(3), pages 635-665, September.
    4. Chen, Yongmin & Hua, Xinyu & Maskus, Keith E., 2021. "International protection of consumer data," Journal of International Economics, Elsevier, vol. 132(C).
    5. Simon P. Anderson & Bruno Jullien, 2015. "The advertising-financed business model in two-sided media markets," Post-Print hal-02866192, HAL.
    6. Michael Kummer & Patrick Schulte, 2019. "When Private Information Settles the Bill: Money and Privacy in Google’s Market for Smartphone Applications," Management Science, INFORMS, vol. 65(8), pages 3470-3494, August.
    7. Philipp Dimakopoulos & Slobodan Sudaric, 2017. "Privacy and Platform Competition," Working Papers 2017003, Berlin Doctoral Program in Economics and Management Science (BDPEMS).
    8. Hana Choi & Carl F. Mela & Santiago R. Balseiro & Adam Leary, 2020. "Online Display Advertising Markets: A Literature Review and Future Directions," Information Systems Research, INFORMS, vol. 31(2), pages 556-575, June.
    9. Anna D’Annunzio & Antonio Russo, 2024. "Intermediaries in the Online Advertising Market," Marketing Science, INFORMS, vol. 43(1), pages 33-53, January.
    10. Jin, Ginger Zhe & Wagman, Liad, 2021. "Big data at the crossroads of antitrust and consumer protection," Information Economics and Policy, Elsevier, vol. 54(C).
    11. Henk Kox & Bas Straathof & Gijsbert Zwart, 2017. "Targeted advertising, platform competition, and privacy," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 26(3), pages 557-570, September.
    12. Dengler, Sebastian & Prüfer, Jens, 2021. "Consumers' privacy choices in the era of big data," Games and Economic Behavior, Elsevier, vol. 130(C), pages 499-520.
    13. Kerkhof, Anna & Münster, Johannes, 2015. "Quantity restrictions on advertising, commercial media bias, and welfare," Journal of Public Economics, Elsevier, vol. 131(C), pages 124-141.
    14. Francis Bloch & Gabrielle Demange, 2018. "Taxation and privacy protection on Internet platforms," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 20(1), pages 52-66, February.
    15. Florian Hoffmann & Roman Inderst & Marco Ottaviani, 2020. "Persuasion Through Selective Disclosure: Implications for Marketing, Campaigning, and Privacy Regulation," Management Science, INFORMS, vol. 66(11), pages 4958-4979, November.
    16. Jullien, Bruno & Pavan, Alessandro & Rysman, Marc, 2021. "Two-sided Markets, Pricing, and Network Effects," TSE Working Papers 21-1238, Toulouse School of Economics (TSE).
    17. Choi, Jay Pil & Jeon, Doh-Shin & Kim, Byung-Cheol, 2019. "Privacy and personal data collection with information externalities," Journal of Public Economics, Elsevier, vol. 173(C), pages 113-124.
    18. Simon P. Anderson & Martin Peitz, 2023. "Ad Clutter, Time Use, and Media Diversity," American Economic Journal: Microeconomics, American Economic Association, vol. 15(2), pages 227-270, May.
    19. Song Lin, 2020. "Two-Sided Price Discrimination by Media Platforms," Marketing Science, INFORMS, vol. 39(2), pages 317-338, March.
    20. Belleflamme, Paul & Vergote, Wouter, 2016. "Monopoly price discrimination and privacy: The hidden cost of hiding," Economics Letters, Elsevier, vol. 149(C), pages 141-144.

    More about this item

    Keywords

    advertising; ad network; Internet; tracking; multi-homing; privacy;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:66:y:2020:i:11:p:5040-5058. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.