Information Asymmetry And Payment Schemes in Online Advertising

Pay-for-performance advertising schemes such as pay-per-click (PPC) and pay-per-sale (PPS) have grown in popularity with the recent advances in digital technologies for targeting advertising and measuring outcomes. However, several publishers still continue to use well-established pay-per-impression (PPI) payment schemes. Given the choice of multiple payment schemes PPI, PPC, and PPS our study examines the role of information asymmetry between advertisers and publishers in determining the optimal choices for publishers. We highlight the role of payment schemes as a means of leveraging private information available to publishers and advertisers. Our study identi es the conditions under which di erent types of publishers nds it optimal to o er PPI, and the conditions under which pay-for-performance schemes are optimal. The strategy of o ering multiple payment schemes simultaneously by a publisher is also analyzed. Our results provide insights into a number of commonly observed publisher strategies. We discuss the implications of our ndings for advertisers, publishers and technology providers.