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Online Advertising and Privacy

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Author Info

  • Alexandre de Cornière
  • Romain De Nijs

Abstract

An online platform makes a profit by auctioning an advertising slot that appears whenever a consumer visits its website.� Several firms compete in the auction, and consumers differ in their preferences.� Prior to the auction, the platform gathers data which is statistically correlated with consumers' tastes for products.� We study the implications of the platform's decision to allow potential advertisers to access the data about consumers' characteristics before they bid.� On top of the familiar trade-off between rent extraction and efficiency, we identify a new trade-off: the disclosure of information leads to a better matching between firms and consumers, but results in a higher equilibrum price on the product market.� We find that the equilbrium price is an increasing function of the number of firms.� As the number of firms becomes large, it is always profitable for the platform to disclose the information, but this need not be efficient, because of the distortion caused by the higher prices.� When the quality of the match represents vertical shifts in the demand function, we provide conditions under which disclosure is optimal.

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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 650.

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Date of creation: 22 Mar 2013
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Handle: RePEc:oxf:wpaper:650

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Keywords: Online advertising; privacy; information disclosure; auctions;

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References

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  1. Calzolari, Giacomo & Pavan, Alessandro, 2006. "On the optimality of privacy in sequential contracting," Journal of Economic Theory, Elsevier, vol. 130(1), pages 168-204, September.
  2. Timothy Van Zandt, 2004. "Information Overload in a Network of Targeted Communication," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 542-560, Autumn.
  3. Susan Athey & Glenn Ellison, 2007. "Position Auctions with Consumer Search," Levine's Bibliography 122247000000001633, UCLA Department of Economics.
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  8. Vincent Conitzer & Curtis R. Taylor & Liad Wagman, 2012. "Hide and Seek: Costly Consumer Privacy in a Market with Repeat Purchases," Marketing Science, INFORMS, vol. 31(2), pages 277-292, March.
  9. Jonathan Levin & Paul Milgrom, 2010. "Online Advertising: Heterogeneity and Conflation in Market Design," American Economic Review, American Economic Association, vol. 100(2), pages 603-07, May.
  10. Bergemann, Dirk & Pesendorfer, Martin, 2001. "Information Structures in Optimal Auctions," CEPR Discussion Papers 2991, C.E.P.R. Discussion Papers.
  11. Andrei Hagiu & Bruno Jullien, 2011. "Why do intermediaries divert search?," RAND Journal of Economics, RAND Corporation, vol. 42(2), pages 337-362, 06.
  12. Susan Athey & Emilio Calvano & Joshua Gans, 2013. "The Impact of the Internet on Advertising Markets for News Media," NBER Working Papers 19419, National Bureau of Economic Research, Inc.
  13. Simon Board, 2009. "Revealing information in auctions: the allocation effect," Economic Theory, Springer, vol. 38(1), pages 125-135, January.
  14. Juan-Jos� Ganuza, 2004. "Ignorance Promotes Competition: An Auction Model of Endogenous Private Valuations," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 583-598, Autumn.
  15. Simon GB Cowan & Simon Cowan, 2004. "The welfare effects of third-degree price discrimination," Economics Series Working Papers 205, University of Oxford, Department of Economics.
  16. Roy, Santanu, 2000. "Strategic segmentation of a market," International Journal of Industrial Organization, Elsevier, vol. 18(8), pages 1279-1290, December.
  17. Esteban, Lola & Gil, Agustin & Hernandez, Jose M, 2001. "Informative Advertising and Optimal Targeting in a Monopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 49(2), pages 161-80, June.
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Cited by:
  1. Alexandre de Cornière, 2013. "Search Advertising," Economics Series Working Papers 649, University of Oxford, Department of Economics.

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