Blockchain Technology Adoption in Digital Advertising : A Game-Theoretic Analysis

Recently, the disruptive impact of blockchain technology on the digital advertising industry has caught widespread attention. However, advertisers are uncertain of whether to adopt the blockchain, and it is unclear how publishers would allocate their spots facing this new technology. Although these are important and growing questions in the advertising industry, nearly no previous literature has formally examined it. In this paper, we attempt to fill this important and critical gap. Using a game-theoretic model, we study how digital advertisers should choose their blockchain adoption strategies in a competitive environment, and how the publisher should assign his advertising spots among the advertisers correspondingly. With blockchain technology, advertisers can avoid click fraud and work with publishers directly, while incurring certain blockchain-related costs; publishers can benefit from instant payment and no middleman, but in the meantime, lose potential revenue generated from click manipulation. Interestingly, we find that the publisher would assign the high spot to the blockchain-based advertiser only when the payment delay in the traditional channel is relatively high. We then identify the existence conditions of all possible equilibria and examine how they are affected by various context-specific factors. We find that, contrary to conventional wisdom, when one advertiser's revenue per click increases, the other advertiser may sometimes be better off being moved down to the low spot, potentially leading to a Pareto improvement for both advertisers. Moreover, we find that the publisher's profit may increase with the degree of inter-spot differentiation. Another interesting finding is that the objectives of advertisers and the publisher may sometimes conflict with each other, potentially leading to a reduced social welfare. Our paper provides useful implications for not only the publishers and advertisers but also the policymakers, regarding the adoption of blockchain in digital advertising