Author(s)
Nikhil Agarwal,
Susan Athey and David Yang
Source
American Economic Review, 99(2): 441-447, 2009
Summary
This paper looks at problems that might arise with a “pay-per-action” (PPA) online advertising system.
Policy Relevance
The present "pay-per-click" avoids some cheating problems that a PPA might have. To work well, PPA systems should restrict actions and reporting of actions.
Main Points
- The “pay-per-click” system for online advertising is most used now; the advertiser pays the search engine when a user clicks on the advertiser’s online ad. Problems like “click fraud” arise; when online publishers share ad revenues with search engines, they might be tempted to click on an ad many times.
- The “pay-per-action” system (PPA) is one alternative; advertisers pay only when a user takes a designated valued action on the advertiser’s web site. But PPA systems have problems.
- To use PPA, a search engine would need to guess which actions are likely to be most frequent. Advertisers will know more about how holidays and other factors affect action rates.
- Advertisers might want to choose which user actions they pay for. Advertisers also control their own web sites. These factors mean:
- Advertisers can manipulate how their web sites record and report actions, or make it more or less likely that users take certain actions on their sites.
- Advertisers might bid a large amount for a now-impossible action, getting a high ranking in the auction without needing to pay more.
- To reduce manipulation, platforms like search engines that sell ad space would probably restrict the allowable actions to one type; or regulate how and when actions are reported.