Ad Blocking, Whitelisting, and Advertiser Competition

We consider a market environment with a monopoly ad blocker that offers whitelisting to two publishers. Advertisers post ads on the publishers websites to attract the attention of consumers (who visit both publishers). Since advertisers are competing in the marketplace, an advertiser may have an incentive to foreclose its competitor through excessive advertising. We fully characterise the equilibrium in which ad blocker, publishers, and advertisers make strategic pricing decisions. Under some conditions, the ad blocker profitably sells whitelisting to one publisher and both publishers are strictly better off than without the ad blocker. Under other conditions, not only publishers but also either advertisers or consumers are worse off.