[gindely]

What's the advantage of this? Surely they're better off pricing it at 2x the expected ad revenue, since then they can expect to get twice as much now as they otherwise would get eventually? Indeed, even if it were 1.01x the expected ad revenue they've won with this upsell.

[jjoonathan]

A willingness to pay signals that you A. have money and B. care about quality, which makes you a ripe target for price discrimination, which is why "ad-free" premiums often exceed the ad revenue by an enormous factor.

[plorkyeran]

Charging 1.01x the expected ad revenue wouldn't cover the cost of implementing the no-ad option. Even 2x might be in break-even territory when you include extra support costs and the like (one person on the phone because they bought no-ads and got ads due to a mishap somewhere wipes out the profit from a lot of no-ad sales).

There's also the funny issue where people who can afford to pay extra for the no-ads option are exactly the people that advertisers want to show ads to. If the no-ads option is $5, then you're left selling ads with a target market of people who can't afford or don't want to spend $5, and that ends up driving down your ad revenue. A large gap between the expected ad revenue and the price of the no-ad option helps mitigate this effect.

[nitrogen]

Isn't this advertising pricing paradox proof of the exploitative nature of advertising?

[daemin]

Pretty much. In Australia Pay TV has more ads in it per hour than free to air TV.