Pricing Web Advertisement: Display Ads VS Contextual Ads

Abstract

Most web sites provide display advertising and contextual advertising services simultaneously, which are the main ad formats in Internet. With multimedia format, the pricing of display ads is generally based on the occurrence of ad impressions. However targeting their customers more accurately, contextual ads are performance based advertisements and are charged only if one visitor clicks a client's appointed ad. In this paper, we develop an economic model to examine the pricing strategy, profitability, and social efficiency of these two heterogeneous web advertising channels, with respect to different market structures.