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Regulating Native Advertising

Author

Listed:
  • Yue Wu

    (Katz Graduate School of Business, University of Pittsburgh, Pittsburgh, Pennsylvania 15260)

  • Esther Gal-Or

    (Katz Graduate School of Business, University of Pittsburgh, Pittsburgh, Pennsylvania 15260)

  • Tansev Geylani

    (Katz Graduate School of Business, University of Pittsburgh, Pittsburgh, Pennsylvania 15260)

Abstract

Native advertising is not fully transparent to consumers because it bears similarity to editorial content. Increasing the opaqueness of native ads can raise publishers’ click-through rate, but can also negatively affect consumers’ quality perception of the publishers’ editorial content and lead to lower profitability. In this paper, we develop a game-theoretical model of native ads to investigate the economic implications of regulation. Our model considers two types of publishers, who differ in the quality of their editorial content. We show that publishers have incentives to self-regulate native ads through lower opaqueness in order to signal their high quality to the market. We find that stricter regulation can make native ads more opaque, on average, because it can eliminate the incentives of high-quality publishers to distinguish themselves from low-quality publishers. Consequently, strengthening regulation can yield lower consumer surplus and social welfare.

Suggested Citation

  • Yue Wu & Esther Gal-Or & Tansev Geylani, 2022. "Regulating Native Advertising," Management Science, INFORMS, vol. 68(11), pages 8045-8061, November.
    • Handle: RePEc:inm:ormnsc:v:68:y:2022:i:11:p:8045-8061
    DOI: 10.1287/mnsc.2021.4242
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    References listed on IDEAS

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