Working Paper | HBS Working Paper Series | 2014

Information and Incentives in Online Affiliate Marketing

by Benjamin G. Edelman and Wesley Brandi

Abstract

We examine online affiliate marketing programs in which merchants oversee thousands of affiliates they have never met. Some merchants hire outside specialists to set and enforce policies for affiliates, while other merchants ask their ordinary marketing staff to perform these functions. For clear violations of applicable rules, we find that outside specialists are most effective at excluding the responsible affiliates, which we interpret as a benefit of specialization. However, in-house staff are more successful at identifying and excluding affiliates whose practices are viewed as "borderline" (albeit still contrary to merchants' interests), foregoing the efficiencies of specialization in favor of the better incentives of a company's staff. We consider the implications for marketing of online affiliate programs and for online marketing more generally.

Keywords: affiliate marketing; incentives; fraud; advertising; Advertising Campaigns; Online Advertising; Ethics; Advertising Industry; Information Technology Industry; Web Services Industry;

Citation:

Edelman, Benjamin G., and Wesley Brandi. "Information and Incentives in Online Affiliate Marketing." Harvard Business School Working Paper, No. 14-041, November 2013. (Revised March 2014.)