Title

Online Aservice Pricing and an Option Contract

Document Type

Article

Publication Date

2-2011

Keywords

online advertisements, option contract, nash bargaining, click-through rate, utility maximization

Digital Object Identifier (DOI)

https://doi.org/10.1016/j.elerap.2010.04.005

Abstract

For the Internet advertisement market, we consider a contract problem between advertisers and publishers. Among several ways of pricing online advertisements, the methods based on cost-per-impression (CPM) and cost-per-click (CPC) are the two most popular. The CPC fee is proportional to the click-through rate (CTR), which is uncertain and makes decisions of advertisers and publishers difficult. In this paper, we suggest a hybrid pricing scheme: advertisers pay the minimum of CPM and CPC fees by purchasing an option from publishers. To determine the option price, we consider a Nash bargaining game for negotiation between an advertiser and a publisher and provide the solution. Further, we show that such option contracts will help the advertiser avoid high cost and the publisher generate more revenue. The option contract will also improve the contract feasibility, compared to CPM and CPC.

Was this content written or created while at USF?

No

Citation / Publisher Attribution

Electronic Commerce Research and Applications, v. 10, issue 1, p. 38-48