An economic model of the online advertising market is presented, focusing on the effect of ad fraud. In the model, the market is comprised of three classes of players: publishers, advertising networks, and advertisers. The central question is whether ad networks have an incentive to aggressively combat fraud. The main outcome of the model is to answer this question in the affirmative.

Perfect competition or Bertrand competition cause price to equal marginal cost, so that excise tax incidence can be illustrated with the most basic supply-demand diagram. Some results are: • excise taxes are shared by suppliers and demanders according to their relative price elasticities • holding revenue fixed, it doesn’t matter (for supply price, demand price, and quantity traded) whether the...