Economic Analysis of Reward Advertising

Optimizing Reward Ads for Monetization and Engagement

• Optimal Strategy for Reward Ads:

  • App developers should offer reward ads if the revenue generated from these ads exceeds the nuisance cost for some consumers. When this condition is met, it is often optimal to combine reward ads with direct selling of premium content.

• Consumer Satiation and Ad Viewing:

  • A high reward rate can lead to fewer reward ads being viewed due to consumers reaching satiation for premium content more quickly. Thus, developers need to balance incentivizing ad viewing and preventing excessive accelerated satiation.

• Setting Limits on Reward Ads:

  • Developers should consider limiting the number of reward ads per consumer when the marginal revenue from additional ads diminishes quickly. This limit is effective when the base ad revenue rate is not very high and when consumers have relatively homogenous nuisance costs.

• Impact on Consumer Surplus:

  • Reward ads can either increase or decrease consumer surplus. The hybrid strategy, which combines reward ads and premium content selling, tends to produce the same consumer surplus as pure content selling but yields higher profits for developers. The pure reward-ad strategy may benefit low-cost consumers and harm high-cost ones, depending on their proportion in the market.

• Economic Efficiency and Ad Engagement:

  • Reward advertising is effective as it targets consumers with low nuisance costs, leading to higher engagement with the ads. This approach ensures efficient advertising where consumers are more likely to engage positively with the ads, resulting in better outcomes for both advertisers and app developers.

  Full Economic Analysis of Reward Advertising Report Bellow: