How Do Digital Advertising Auctions Impact Product Prices?

Dirk Bergemann, Alessandro Bonatti and Nicholas Wu
Additional contact information
Nicholas Wu: Yale University

No 2367, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We ask how the advertising mechanisms of digital platforms impact product prices. We present a model that integrates three fundamental features of digital advertising markets: (i) advertisers can reach customers on and off-platform, (ii) additional data enhances the value of matching advertisers and consumers, and (iii) bidding follows auction-like mechanisms. We compare data-augmented auctions, which leverage the platformÕs data advantage to improve match quality, with managed campaign mechanisms, where advertisersÕ budgets are transformed into personalized matches and prices through auto-bidding algorithms. In data-augmented second-price auctions, advertisers increase off- platform product prices to boost their competitiveness on-platform. This leads to socially efficient allocations on-platform, but inefficient allocations off-platform due to high product prices. The platform-optimal mechanism is a sophisticated managed campaign that conditions on-platform prices for sponsored products on off-platform prices set by all advertisers. Relative to auctions, the optimal managed campaign raises off-platform product prices and further reduces consumer surplus.

Pages: 46 pages
Date: 2023-07
New Economics Papers: this item is included in nep-com, nep-mic, nep-pay and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://cowles.yale.edu/sites/default/files/2024-02/d2367_0.pdf (application/pdf)

Related works:
Working Paper: How Do Digital Advertising Auctions Impact Product Prices? (2024)
Working Paper: How Do Digital Advertising Auctions Impact Product Prices? (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cwl:cwldpp:2367

Ordering information: This working paper can be ordered from
Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
The price is None.

Access Statistics for this paper

More papers in Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University Yale University, Box 208281, New Haven, CT 06520-8281 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Brittany Ladd ().