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Matching Value and Market Design in Online Advertising Networks: An Empirical Analysis

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  • Chunhua Wu

    (Sauder School of Business, University of British Columbia, Vancouver, British Columbia V6T 1Z2, Canada)

Abstract

Advertising networks have recently played an increasingly important role in the online advertising market. Critical to the success of an advertising network are two mechanisms: an allocation mechanism that efficiently matches advertisers with publishers and a pricing scheme that maximally extracts surplus from the matches. In this paper, we quantify the value and investigate the determinants of a successful advertiser-publisher match, using data from Taobao’s advertising network. A counterfactual experiment reveals that the platform’s profit under a decentralized allocation mechanism is close to the profit level when the platform centrally assigns the matching under perfect platform knowledge of matching values. In another counterfactual experiment, we explore the effect of platform technology and revenue model on the strategic choice of the pricing schemes of list price versus generalized second price (GSP) auction pricing. We find that platforms that profit from the advertiser side may have less incentive to adopt GSP auction than platforms that profit from the publisher side.

Suggested Citation

  • Chunhua Wu, 2015. "Matching Value and Market Design in Online Advertising Networks: An Empirical Analysis," Marketing Science, INFORMS, vol. 34(6), pages 906-921, November.
    • Handle: RePEc:inm:ormksc:v:34:y:2015:i:6:p:906-921
    DOI: 10.1287/mksc.2015.0944
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