If website publishers that advertise on their sites allow consumers to pay to opt out of that advertising, how much does this impact 1) publisher profits and 2) user annoyance?
A quick groundrule: Consumers don't like online advertisements. Tåg cites studies from DIGDIA claiming that 44 percent of consumers admit they would watch television without ads by paying $3.99 per program while 17 percent would pay $2.99 for the same show if it had advertisements.
Thus, media firms have a balancing act. They must weigh revenues from advertisers with the wishes (and potential) revenue from their consumers. If these consumers are relatively profitable to the advertisers, the media firm should not allow people to opt out of adverts. If the site has very high quality (or hard to find) content, allowing users to opt-out of adverts would "cannibalize sales from the fee-based alternative," Tåg writes.
When the media firm is fee-based, he writes, a higher quality product implies higher profits. A higher number of patrons has the same effect. If the user base grows, media firms can charge more for ad space. However, for those sites that allow user opt-out (at a fee), those people who don't pay the fee often see a higher amount of advertising, increasing advertising annoyance. "Shifting to a business model of allowing consumers to pay to remove advertisements harms consumers but benefits advertisers and the media firm," Tag writes.
In the end, Tag argues:
... [A] business model of allowing consumers to pay to remove advertisements is more likely to be optimal when the quality of the media firm’s product is low, the annoyance of advertisements is high, and advertisers’ profit margins are low. Further, the media firm may benefit from an increase in the annoyance of advertisements. Advertising quantity is higher when consumers can pay to remove advertisements compared to when they can’t and advertising quantity may be increasing in the annoyance of advertisements (this offers a testable implication of the model). Shifting to a business model of allowing consumers to pay to remove advertisements harms consumers but benefits advertisers and the media firm. The impact on total welfare is ambiguous.