Allow or not? Strategic choices of competing platforms in response to ad blockers

The use of ad blockers poses a threat to online platforms subsisting on advertising. Building an analytical model with two competing platforms, we investigate whether the entrant platform should adopt an Allow, Ban or Ban-Whitelist strategy in response to ad blockers, if the incumbent platform allows the users to use the ad blockers. Our analysis reveals that the new entrant does not always follow the strategy of the incumbent. If regular users have high ad sensitivity, the new entrant platform should adopt the Ban or Ban-Whitelist strategy, otherwise, the Allow strategy is better off. As the ad-light level or network effects increase, the entrant platform is less likely to choose the Ban strategy and more likely to adopt the Allow strategy. We also examine the impacts of different strategic choices made by the new entrant platform on the incumbent platform and find that the incumbent platform can achieve higher profits when the entrant platform adopts the Ban-Whitelist strategy if the ad sensitivity is high. Our findings also assist the incumbent platform in adjusting its optimal ad intensity to effectively respond to the competition. Specially, the two platforms will decrease the ad intensities as the strength of network effects becomes higher. Furthermore, we find that a win-win-win outcome for the two platforms and social welfare can only be achieved when the new entrant platform adopts the Allow or Ban-Whitelist strategy. Finally, our study explores the benefits of ad blockers and demonstrates the robustness of the results through model extensions.