The primary objective of this study is to explore the various ways that Internet advertising provider (IAP) can charge firms to advertise. There are two pricing strategies that can be adopted. The first is called uniform pricing: Firms pay a fixed fee, depending on the size and location of the advertisement. The second strategy is known as two-part tariff: Firms pay a fixed charge and an additional per-click fee. IAPs may adopt one or both of these pricing strategies. Our model hypothesizes that there are two IAPs offering advertising space. The modeling shows that in cases where a uniform pricing strategy is adopted, the fee that each IAP can attain is monotonically decreasing over their substitutability. That is, IAPs that wish to maximize their revenue have to take measures to distinguish themselves from the competition in order to achieve zero substitutability. In cases where a two-part tariff pricing strategy is adopted, the revenue curve becomes convex. In other words, IAPs may choose to have either full substitutability or zero substitutability in order to maximize their profits.
Tsang, Seng-Su and Chuang, Jung-Kuo, "Internet Advertising: A Comparison of Pricing Strategy" (2002). ICEB 2002 Proceedings. 8.