Do-Not-Track and the Economics of Online Advertising⇤

Retailers regularly target users with online ads based on their web browsing activity, benefiting both the retailers, who can better reach potential customers, and content providers, who can increase ad revenue by displaying more e↵ective ads. The e↵ectiveness of such ads relies on third-party brokers that maintain detailed user information, prompting privacy legislation such as “do-not-track” that would limit or ban the practice. We gauge the economic costs of such privacy policies by analyzing the anonymized web browsing histories of 14 million individuals. We find that 3% of retail sessions are currently initiated by ads capable of incorporating third-party information. Turning to content providers, we find that one-third of tra c is supported by third-party capable advertising, and the rate is particularly high (91%) for online news sites. Finally, we show that for many of the most popular content providers, modest subscription fees of $1-3 per month charged to loyal site users would be su cient to replace ad revenue. We conclude that do-not-track legislation would impact, but not fundamentally fracture, the Internet economy.