Issues
There is the potential for fraud in performance-based advertising.
- The publication may report excessive performance results, although a reputable publication would be unlikely to take the risk of being exposed by audit.
- A competitor may arrange for automatically generated clicks on an advertisement
Since the user's actions are being measured, there are serious concerns of loss of privacy.
Performance-based advertising mechanisms induce firms to distort the prices of their goods (usually upwards) relative to prices that would maximize profits in settings where advertising is sold under established pay-per-impression methods. Upward price distortions reduce both consumer surplus and the joint publisher-advertiser profit, leading to a net reduction in social welfare. Dellarocas (2010) discusses a number of ways in which performance-based advertising mechanisms can be enhanced to restore efficient pricing.
Read more about this topic: Performance-based Advertising
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