Position Auctions with Endogenous Product Information: Why Live-Streaming Advertising Is Thriving

Ying-Ju Chen (), Guillermo Gallego (), Pin Gao () and Yang Li ()
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Ying-Ju Chen: School of Business and Management, Hong Kong University of Science and Technology, Clear Water Bay, Hong Kong
Guillermo Gallego: School of Data Science, The Chinese University of Hong Kong, Shenzhen, Guangdong 518172, Peoples Republic of China; and School of Management and Economics, The Chinese University of Hong Kong, Shenzhen, Guangdong 518172, Peoples Republic of China
Pin Gao: School of Data Science, The Chinese University of Hong Kong, Shenzhen, Guangdong 518172, Peoples Republic of China; and School of Management and Economics, The Chinese University of Hong Kong, Shenzhen, Guangdong 518172, Peoples Republic of China
Yang Li: Ivey Business School, Western University, Ontario N6G 0N1, Canada

Management Science, 2025, vol. 71, issue 11, 9290-9307

Abstract: Live-streaming advertising in e-commerce is soaring. Both Amazon and Alibaba have employed this novel marketing model to engage consumers by sequentially exhibiting different products through live-streaming videos. In this paper, we adopt a mechanism design framework to model live-streaming e-commerce as a position auction with endogenous provision of product information. We prove that finding the mechanism that simultaneously optimizes position allocation and information provision is NP-hard. Thus, we develop several approximation algorithms. Building on the connection to the order selection problem, our analysis establishes that heuristics relying solely on product information provision can achieve up to 66.9% of the optimal revenue in the worst case. In contrast, heuristics exploiting position allocation alone may result in arbitrarily large revenue losses. We attribute the efficacy of product information provision to its enhancement of the value of ad spots in position auctions. Our findings suggest that advertising that focuses on differentiating product information—as in live-streaming e-commerce—is more lucrative than conventional position-based sponsored search. This managerial insight remains valid when accommodating multiproduct purchases with dependency or accounting for random consumer attention spans.

Keywords: live-streaming; position auction; approximation algorithms; information economics (search for similar items in EconPapers)
Date: 2025
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