Pricing of on-line advertising: pay-per-view or pay-per-click?

Abstract

We analyse the choice of pay-per-view (PPV) and price-per-click (PPC) when a web publisher is a price taker in the market for advertising banners, and the number of visits is decreasing in advertising. The main result is that the web publisher should always choose either PPV or PPC. If the click-through rate is exogenous, then the optimal amount of advertising is the same for both pricing metholds and the choice of pricing method is given by the click-through rate. If the click-through rate is endogenous, the amount of advertising will be different under PPV and PPC.