How Do Digital Advertising Auctions Impact Product Prices?

Dirk Bergemann, Alessandro Bonatti and Nicholas Wu

Papers from arXiv.org

Abstract: We present a model of digital advertising with three key features: (i) advertisers can reach consumers on and off a platform, (ii) additional data enhances the value of advertiser-consumer matches, and (iii) bidding follows auction-like mechanisms. We contrast data-augmented auctions, which leverage the platform's data advantage to improve match quality, and managed campaign mechanisms that automate match formation and price-setting. The platform-optimal mechanism is a managed campaign that conditions on-platform prices for sponsored products on the off-platform prices set by all advertisers. This mechanism yields the efficient on-platform allocation but inefficient off-platform allocations due to high product prices; it attains the vertical integration profit for the platform and advertisers; and it increases off-platform product prices and decreases consumer surplus, relative to data-augmented auctions.

Date: 2023-04, Revised 2024-04
New Economics Papers: this item is included in nep-com, nep-des, nep-gth, nep-mic, nep-pay and nep-reg
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Citations: View citations in EconPapers (3)

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http://arxiv.org/pdf/2304.08432 Latest version (application/pdf)

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Working Paper: How Do Digital Advertising Auctions Impact Product Prices? (2023)
Working Paper: How Do Digital Advertising Auctions Impact Product Prices? (2023)
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