Online advertising: Pay-per-view versus pay-per-click with market power

We analyze the choice of pay-per-view (PPV) and pay-per-click (PPC) under imperfect competition where a web publisher is a price setter in the market for advertising banners, the number of visits to the website is decreasing in advertising, and the click-through rate is constant. We find that the optimal amount of advertising under pure PPV or PPC pricing is decreasing in market power, and smaller than for a price-taking web publisher. If the web publisher sells both PPV and PPC advertising, the ratio of the prices should equal the click-through rate if the market power is the same in both markets. However, if the market power for PPV advertising exceeds that for PPC advertising, then the ratio of the prices should be less than the click-through rate. Conversely, if the market power for PPV advertising is less than that for PPC advertising, then the ratio of the prices exceeds the click-through rate.