Emergent Heterogeneity in Keyword Valuation in Sponsored Search Markets: A Closer-to-Practice Perspective

Agam Gupta (), Biswatosh Saha and Uttam K. Sarkar
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Agam Gupta: Indian Institute of Management Tiruchirappalli
Biswatosh Saha: Indian Institute of Management Calcutta
Uttam K. Sarkar: Indian Institute of Management Calcutta

Computational Economics, 2017, vol. 50, issue 4, No 8, 687-710

Abstract: Abstract Reported literature in sponsored search advertising markets asserts that at equilibrium an advertiser has no incentive to swap her position with another advertiser and her bid on a keyword would be bound with the click value acting as an upper bound. We investigate a closer-to-practice case where advertisers do not have an ex-ante known value per click and her bid on a keyword is an outcome of simple cost-cap heuristics on a portfolio of keywords. Using simulations and an experimental setup containing advertisers that have the same upper-cap on cost, we show that the distribution of advertisers’ cost per click and bids are emergent in nature. Keywords exhibit ex post heterogeneity in observed valuation even when all advertisers bid under the same cost-cap constraint. We explore the dynamics of the market, such as temporal stability of advertiser’s bids, and advertiser’s rank based on the click-share along with the distribution of ex post valuation of keywords associated with this closer to practice setup. The results call for a richer understanding of these markets that can incorporate temporal interdependence between auctions of a keyword as well as boundedly rational behavior of advertisers working under imperfect information.

Keywords: Sponsored search; Google auctions; Keyword auctions; Emergent heterogeneity; Practice; Temporal dynamics in auctions; Simulations (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s10614-016-9637-5

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