On Line Advertising: Pay-Per-Click versus Pay-Per-View

The diffusion of the internet has substantially modified the advertising industry's business models. The method of selling advertising space on webpages is one of the most striking innovations. Advertisements and, in particular, banners, are sold through the traditional cost per impression, but also with methods based on a visitor taking some specifically defined action in response to an ad. This paper examines the pricing strategy of web publishers operating in a market where they are unable to influence the price of the advertisement (cost-per-impression and cost-per-action). The main finding is that the distribution of editorial revenues between pay-per-view and pay-per-click methods depends on the elasticity of access and actions with respect to the quantity of advertising. The theoretical result is important, since these parameters are usually available to permit a quick analysis of an online consumer's behaviour.