Regulating Native Advertising

Yue Wu (), Esther Gal-Or () and Tansev Geylani ()
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Yue Wu: Katz Graduate School of Business, University of Pittsburgh, Pittsburgh, Pennsylvania 15260
Esther Gal-Or: Katz Graduate School of Business, University of Pittsburgh, Pittsburgh, Pennsylvania 15260
Tansev Geylani: Katz Graduate School of Business, University of Pittsburgh, Pittsburgh, Pennsylvania 15260

Management Science, 2022, vol. 68, issue 11, 8045-8061

Abstract: Native advertising is not fully transparent to consumers because it bears similarity to editorial content. Increasing the opaqueness of native ads can raise publishers’ click-through rate, but can also negatively affect consumers’ quality perception of the publishers’ editorial content and lead to lower profitability. In this paper, we develop a game-theoretical model of native ads to investigate the economic implications of regulation. Our model considers two types of publishers, who differ in the quality of their editorial content. We show that publishers have incentives to self-regulate native ads through lower opaqueness in order to signal their high quality to the market. We find that stricter regulation can make native ads more opaque, on average, because it can eliminate the incentives of high-quality publishers to distinguish themselves from low-quality publishers. Consequently, strengthening regulation can yield lower consumer surplus and social welfare.

Keywords: native advertising; deceptive practice; regulation; signaling; game theory (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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