Content providers and the strategic choice of advertising networks (Christian Peukert)

We study the strategic trade-off that advertising-supported content providers face when deciding which advertising network to join. Larger networks may be better in showing relevant ads because they are able to track a more divers set of consumers. Smaller networks that specialize in a specific type of content may be able to make more accurate predictions because they can measure preferences of specific consumers with less noise. However, if all content providers within a content category join the same advertising network, all firms benefit in the same way, and no content provider can achieve a competitive advantage with respect to the productivity of advertisements. Hence, circumstances may exist where it is better to choose a different advertising network than most of the competitors. The identification strategy makes use of variation from differences across content categories that permit content providers to join specific advertising networks for regulatory reasons that are unrelated to the size of the advertising network. The paper has implications for our understanding of the dynamics of the industrial organization of the online advertising industry. Strategic interactions between content providers may facilitate the concentration of the industry or work against it, which both has implications for consumer privacy regulation.

Understanding the economics of the illegal internet (Michail Batikas)

Most digital goods like software, music, video, or books content have high fixed cost of production and negligible marginal costs when distributed over the Internet. Given this cost structure and the low entry barriers (as these digital goods can be easily copied), the equilibrium solution for offering these kinds of goods illegally has turned out to be a zero price to be paid by the consumers. In turn, most platforms offering illegal content are monetizing through an advertising-based strategy. While existing research on fighting these offerings has looked at multiple ways of stopping the demand and supply side, the key source of generating income has so far been largely overlooked: the relationship of these illegal offerings with advertisers.

The aim of this project is therefore to generate first insights into the ecosystem of illegal advertising-based offerings. This will be done by starting with a list of illegal platforms running an advertising-based business and offering free access to digital goods. Advertising partners for each of these platforms will then be identified by using an innovative approach of identifying links to third-party advertisers that are embedded in the focal platform. By comparing the advertising ecosystem of illegal offering with the advertising ecosystem of a group of comparable legal offerings, the following research questions can be answered:

  1. Is there a dedicated market of advertisers serving mainly illegal offerings or are illegal offerings using the same advertisers as the legal control group?
  2. How fragmented is the market for advertisers behind illegal offerings and could action against leading advertisers serving these offerings have a significant impact?

Could legal action against advertisers working together with illegal offerings be easily enforced or are these advertisers operating in environments making legal action difficult?