Allow or block: Optimal strategies against ad-blockers in competitive markets

The main income streams of many publishers (of online content such as websites) are advertising (ad) revenues from their websites. However, users mostly find the ads annoying especially when they are not relevant for them (Baek and Morimoto 2012). Also, many users are concerned with potential privacy and security issues if they see customized and/or harmful ads (e.g. Storey et al. 2017). The resulting irritation motivates users to look for ways how to avoid the ads (Kim and Sundar 2010). One of the most common and efficient options are ad-blockers. Thus, an increasing number of people use ad-blockers recently (Entrepreneur 2016) which becomes a threat to the main revenue stream of publishers. In order to deal with this challenge, some of them offer an ad-free (premium) version of their websites to customers who pay a subscription fee. Others ask the users to turn off their ad-blocker. In this case, the users either turn off the ad-blocker or leave the website. In this article, we consider a market with three sides: (a) the publisher whose main income are the ads, (b) the user who may want to use the ad-blocker to avoid the ads, and (c) the web browser (respectively the companies developing web browsers) that provides a platform to the publishers. The purpose of this article is to develop a modeling approach (based on Singh and Vives 1984; Godes, Ofek, and Sarvary 2009) to explore the best strategy for publishers and web browsers in monopoly and duopoly markets. The publisher could choose among three strategies: (1) show the content to everyone, (2) show the content only to those who turn the ad-blockers off, and (3) show the content to users who pay a subscription fee. The web browser could choose between two strategies: (1) allow the ad-blockers and (2) block the ad-blockers. Furthermore, we are interested in finding the optimal content quality the publisher generates and the optimal subscription fee if the premium model is optimal.