If an audience for the product can be found, why not? Just bear in mind that of the content routinely ripped and put up elsewhere, fiction is top of the list. Your fiction would be competing with your site REAL QUICK! (sigh)
Sorry, back to the original question...with the exception of a few types of fiction (specifically, any that provokes a consumerist mindset for the products hyped by AdSense advertisers) you might find certain types of fiction can earn clicks, but in the long term and in general, I don't see AdSense as a good model for earning money with fiction. Not just the problem of protecting your copyright, but also the length of fictional works, the verboten subjects covered in so much fiction (namely, sex and violence), and other such issues would conflict with AdSense rules, which are not really designed for fiction.
IF it's all family-friendly and you somehow get views ranging in the bestseller class, you might earn significantly from views alone - but I have no idea how that would compare to royalties you might earn otherwise.
On the other hand, there is not yet really a good marketing model for fiction online, and the field is ripe for growth as print publishing shrinks. So it's worth trying, if you're a big gambler, can think of an innovative format, and think you have a product that'll earn you more that way than through more traditional routes.
I spoke in generalities earlier, but as a webmaster who does exactly that on one site (fiction with adsense) I spend more time filing DCMA's than I wish. Can be done... over and over to protect the product (fiction)... just a lot of hard work.
(The scrapper libtards freetards think anything created is theirs to rip)
Have fun! (Oh... if not clear, this is not a good niche)
Ask iBook, Kindle or Amazon (the electronic venues), otherwise in print media, yeah, does a good job and made (example) J K Rowling secure.
As regards my fiction site, that has led to "offers" for different venues where other kinds of money is possible... call it a loss leader to the "good stuff". One of those pick and choose effort kind of things. Getting from A to C, skipping B and D to arrive at F. (Finance)
Keeping on topic, there is adsense... it just is not the reason why the site exists... I don't expect income nor rely on adsense... just the nature of the beast.
J K Rowling is the extreme exception. If it weren't so then the barrier to earning millions would be as low as holding a pencil. Surely you know and understand that fiction writing does not pay. Let's not muddy this fact.
Few fiction writers earn a living at it. Yes there are some earning a living with fiction writing but they are the miniority. Fiction, poetry, and to extend the topic, or painting do not pay. Creative Arts are not a field like medicine, architecture, or law. In general, the creative arts do not pay well.
If you have faith that your fiction is good, then consider putting up just enough to whet your readers appetites, and then maybe self publishing the rest as an ebook or some such. The product placement idea isn't bad either.
With AdSense, you always have to remember user intent (although somehow people rarely seem to). AdSense works pretty well on sites that people come to when they're in a mood to buy something. If they're just coming to read something, then they might feel the ads get in the way, or just plain ignore them. It's not what they're there for. You'll no doubt get some clicks, but you'll probably have to get humongous traffic to make it worth while. That is the case with a few of my sites - people don't come to buy, but as long as traffic is heavy, the earnings are reasonable. As soon as traffic dies down, earnings go flat. So I had to come up with other sites that were more focused on answering user intent to purchase.
Amazon might be a better option for fiction and text-heavy content. The reader is going to be more engaged with the fiction piece and a carefully chosen Amazon recommendation would probably have a better impact.
Every TV show (most, anyway) is fiction, dreamed up a writer (reality shows excepted). They have been making money through advertising for decades. No reason why a website cannot. And I have to say that my sites are heavy with content, and we're not trying to sell anything in particular. I do quite well with Adsense.
I think ember has a point, which is far beyond this little subject of AdSense.
It looks like fiction is still a huge untapped potential on the web. It's just that the winning format hasn't been found yet. The ebook, music or film downloads are clunky. What will be successful is when it all goes live.
I understand the technical limits of music and movies going live on the web. In most cases, just isn't fast enough.