Archive for category Economics

The Economics of Adblock Plus

Several arguments have been made, claiming that using programs such as Adblock Plus, which completely eliminate ads from the vast majority of websites, and certainly popular websites (unless the user manually chooses to allow the ads), are hurting the very websites people visit without subscriptions. I think such a thing may be thrown out of proportion for several reasons.

There is still an abundance of users who do not use ad blocking software and have no interest in it. Given that the sources of the arguments tend to be technically-oriented websites, their user base probably has a greater usage of ad blocking software than most other websites. Regardless, the very same users who run the software probably never intend to click on advertisements. I find most advertisements annoying as they needlessly waste CPU cycles, draining my battery life when I’m on the go and flashing their messages obnoxiously, trying to get my attention. I research before making a purchase — advertisements can hardly count as that, and as such, will never be a factor in any of my money spent online. Ad revenue given solely from views (something that I should think is a rarity) is made on the assumption that a certain percentage of views will translate into clicks (and sales), or else the pay-per-click option would have replaced it in that specific instance.

There is an explanation for this using microeconomics and it has to do with elasticity — perfect elastic demand, in this case. In the case of elastic demand, the quantity demanded for a product is fairly reactive to price changes — a lowered price would attract more buyers. In the case of inelastic demand, the quantity demanded for a product is fairly nonreactive to price changes. Imagine the quantity demanded for a free item, such as water from a drinking fountain, when the price of it begins to rise over 0. Would many (or any) people pay for drinking water if it wasn’t free? I highly doubt it. That is an instance of perfect elasticity, in which a small price change has a very large effect on quantity demanded. Thus, when drinking water left the $0 price mark, quantity demanded is virtually zero.

The red line indicates the demand curve -- a potentially infinite quantity demanded exists at the price $0 but none or virtually none exists at any other price, even $0.01.

The same applies to websites that lack paid subscriptions. If their ‘price’ was to leave $0, people would simply look for alternatives. If those are not found or are unsatisfactory, people would either have to adjust their lifestyles (i.e., life without that specific website or websites) or consider whether it would be worth it to pay for a subscription to the previously free website. I think alternatives would be readily available because competition between websites would allow webmasters who get little traffic to work for the views and accept less pay than the previous website considered acceptable. A hypothetical example: popular website X considers 300k views/month and 10k/month income unacceptable while previously unknown website Y considers 150k views and 1k/month income a godsend.

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