¹Department of Accounting, Auditing and Law, Helleveien 30, Bergen 5045, Norway. Tel: +47 55959687; Fax: +47 55959320; E-mail: Kenneth.fjell@nhh.no

²Kenneth Fjell holds a PhD in Economics from the University of Wisconsin-Milwaukee. For several years he coordinated a research programme in telecommunication economics at the Institute for Research in Economics and Business Administration. Since 2002 he has been an associate professor at the Department of Accounting, Auditing, and Law at the Norwegian School of Economics and Business Administration. In 2006 he spent one year as senior advisor for the Norwegian Competition Authority. He has been a consultant to among others, the Norwegian Competition Authority, ESA, Telenor ASA, and Hafslund ASA. His research interests are management accounting, pricing, competition law, and industrial organisation.

Received 29 August 2008; Revised 29 August 2008; Published online 28 November 2008.

Abstract

We analyse the choice of pay-per-view (PPV) and pay-per-click (PPC) when a web publisher is a price taker in the market for advertising banners, and the number of visits is decreasing in advertising. Several pricing recommendations are developed. First, the web publisher should always choose either PPV or PPC. Specifically, if the click-through rate is less than the ratio of PPV to PPC prices, then PPV should be chosen, and vice versa. Furthermore, if the click-through rate is exogenous, then the optimal amount of advertising is the same for both pricing methods. Finally, if the click-through rate is endogenous, the amount of advertising will be different under PPV and PPC.