Ad Fraud Under the Vertical Contract Structure

Abstract

Ad fraud has serious consequences for brands. However, only limited theoretical works have addressed this topic, and empirical research is scarce. In this paper, we examine ad fraud behavior at different levels of vertical contractual structure. Using two unique data sets separately containing click fraud information for agents and publishers, we examine the difference in ad fraud scale and strategy between upstream agents and downstream publishers. The findings reveal that upstream agents are more sophisticated players than downstream publishers when committing ad fraud. Agents’ ad fraud rate shows decreasing effects on the size of the campaign, while publishers’ fraud rate is uncorrelated with their ability to attract authentic traffic. In terms of strategy, while publishers adopt a relatively uniform strategy and seem to be myopic, agents are more sophisticated and show clear patterns of forward-looking behavior. We speculate that different market environments and incentives drive these differences.