Matching Value and Market Design in Online Advertising Networks

Jul 01 2015

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  • Forthcoming at Marketing Science.

Abstract

Advertising networks have recently played an increasingly important role in the online advertising market. Critical to the success of an advertising network are two mechanisms: an allocation mechanism that efficiently matches advertisers with publishers and a pricing scheme that maximally extracts surplus from the matches. In this paper, we quantify the value and investigate the determinants of a successful advertiser-publisher match, using data from Taobao’s advertising network. A counterfactual experiment reveals that the platform’s profit under a decentralized allocation mechanism is close to the profit level when the platform centrally assigns the matching under perfect knowledge. In another counterfactual experiment, we explore the effect of platform technology and revenue model on the strategic choice of the pricing schemes of list price vs. GSP auction pricing. We find that platforms that profit from the advertiser side may have less incentive to adopt GSP auction than platforms that profit from the publisher side.

Keywords: Advertising Network, Matching Game, Maximum Score Estimation, Generalized Second Price Auction, Platform Design

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