Optimal Keyword Bids in Search-Based Advertising with Stochastic Advertisement Positions

Susan Cholette, Özgür Özlük () and Mahmut Parlar
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Susan Cholette: San Francisco State University
Özgür Özlük: San Francisco State University
Mahmut Parlar: McMaster University

Journal of Optimization Theory and Applications, 2012, vol. 152, issue 1, No 12, 225-244

Abstract: Abstract US expenditures on search-based advertising exceeded $12 billion in 2010. Advertisers bid for keywords, where bid price determines ad placement, affecting click-through and conversion rates. Advertisers must select keywords, allocating each a proportion of their fixed daily budget. In this paper, we construct a stochastic model for the selection and allocation process. We provide analytical results for the single-keyword problem and examine the multiple-keyword problem numerically. We investigate trade-offs between keywords given varying levels of risk and return. We show the implications of enforcing a probabilistic budget constraint. Our paper provides a critical analysis of the advertiser’s problem that may guide future research.

Keywords: Search-based advertising; Budget optimization; Probabilistic models (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s10957-011-9886-3

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