In recent years, ad blocking has become a significant threat to advertising supported publishers. Adblockers typically negotiate with publishers, allowing some ads to go through in return for a payment, a practice called "whitelisting'' in the industry. This paper builds an analytic model to explore the strategic interaction between publishers and adblockers to assess the effect of ad blocking on publishers' quality choices, consumer surplus and total welfare. In a setup with a single publisher and an adblocker that has full negotiating power, we find that the impact of ad blocking critically depends on the extent of consumer heterogeneity in the valuation of quality and sensitivity to advertising. Ad blocking harms publishers and unless consumer heterogeneity is minimal in both dimensions it harms total consumer surplus as well. While some consumers are always better off in the presence of ad blocking, content quality declines and this negative effect on the average consumer is typically not compensated by the positive impact of reduced ad exposure. We explore the impact of varying levels of negotiation power between adblocker and publisher to find that, full negotiation power is not preferred by the adblocker. We then extend our analysis to multiple publishers with different levels of competition between them. We find that a common adblocker creates a strategic link between the publishers, which can either reinforce or attenuate the effect of ad blocking. Nevertheless, the overall negative effect of ad blocking is confirmed. In the discussion section, we report some robustness checks and further elaborate on a number extensions that are available in additional analyses. In particular, we explore the possibility for publishers to introduce a subscription model and we analyze the problem of a transaction platform (e.g. a social network) that seeks to optimally `regulate' ad blocking for the overall benefit of its diverse user base
