Incentive Problems in Performance- based Online Advertising_ Cost-per-Click vs. Cost-per-Action

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1、IncentiveProblemsinPerformance-basedOnlineAdvertisingPricing:CostperClickversusCostperActionYu(Jerey)Hu,JiwoongShin,andZhuleiTangDecember2014AbstractThemultibillion-dollaronlineadvertisingindustrycontinuestodebatewhethertousetheCPC(costperclick)orCPA(costperaction)pricingmodel

2、asanindustrystandard.Thisarticleap-pliestheeconomicframeworkofincentivecontractstostudyhowthesepricingmodelscanleadtorisksharingbetweenthepublisherandtheadvertiserandincentivizethemtomakeeortsthatimprovetheperformanceofonlineads.Wendthat,comparedtotheCPCmodel,theCPAmodelcanbet

3、terincentivizethepublishertomakeeortsthatcanimprovethepurchaserate.However,theCPAmodelcancauseanadverseselectionproblem:thewinningadvertisertendstohavealowerprotmarginundertheCPAmodelthanundertheCPCmodel.WeidentifytheconditionsunderwhichtheCPAmodelleadstohigherpublisher(oradve

4、rtiser)payosthantheCPCmodel.Whetherpublishers(oradvertisers)prefertheCPAmodelovertheCPCmodeldependsontheadvertisers'riskaversion,uncertaintyintheproductmarket,andthepresenceofadvertiserswithlowimmediatesalesratios.Ourndingsindicateaconictofinterestbetweenpublishersandadvertis

5、ersintheirpreferencesforthesetwopricingmodels.Wefurtherconsiderwhichpricingmodeloersgreatersocialwelfare.Keywords:Onlineadvertising,cost-per-clickthrough,cost-per-action,incentive,adverseselec-tion,moralhazard,pricingmodel.AssociateProfessorofInformationTechnologyManagement,Sc

6、hellerCollegeofBusiness,GeorgiaInstituteofTech-nology;ProfessorofMarketing,SchoolofManagement,YaleUniversity;AnalyticsSpecialist,McKinsey&Company.WethankJerryHausman,BengtHormstrom,SubrataSen,K.SudhirandYiZhufortheirvaluablefeedbackandseminarparticipantsatthe2008INFORMSMarketing

7、ScienceConference,andthereviewersforthe2010HICSSconferenceforvaluablecommentsontheearlyversionofthispaper.Allcorrespondencemaybeaddressedtojiwoong.shin@yale.edu.11IntroductionCPA,orcostperaction,istheHolyGrailfortargetedadvertising.-MarissaMayer,PresidentandCEO,Yahoo!TheIntern

8、ethasemergedasanincrediblyimportantadvertisingm