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From Mad Men to Maths Men: Concentration and Buyer Power in Online Advertising

Author

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  • Francesco Decarolis
  • Gabriele Rovigatti

Abstract

This paper analyzes the impact of intermediary concentration on the allocation of revenue in online platforms. We study sponsored search documenting how advertisers increasingly bid through a handful of specialized intermediaries. This enhances automated bidding and data pooling, but lessens competition whenever the intermediary represents competing advertisers. Using data on nearly 40 million Google keyword auctions, we first apply machine learning algorithms to cluster keywords into thematic groups serving as relevant markets. Using an instrumental variable strategy, we estimate a decline in the platform's revenue of approximately 11 percent due to the average rise in concentration associated with intermediary merger and acquisition activity.

Suggested Citation

  • Francesco Decarolis & Gabriele Rovigatti, 2021. "From Mad Men to Maths Men: Concentration and Buyer Power in Online Advertising," American Economic Review, American Economic Association, vol. 111(10), pages 3299-3327, October.
    • Handle: RePEc:aea:aecrev:v:111:y:2021:i:10:p:3299-3327
    DOI: 10.1257/aer.20190811
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    Cited by:

    1. Hanspach, Philip & Sapi, Geza & Wieting, Marcel, 2024. "Algorithms in the marketplace: An empirical analysis of automated pricing in e-commerce," Information Economics and Policy, Elsevier, vol. 69(C).
    2. Shakhgildyan, Ksenia, 2025. "Nonparametric identification and estimation of the generalized second-price auction," Games and Economic Behavior, Elsevier, vol. 150(C), pages 480-500.
    3. Francesco Decarolis & Maris Goldmanis & Antonio Penta & Ksenia Shakhgildyan, 2023. "Bid Coordination in Sponsored Search Auctions: Detection Methodology and Empirical Analysis," Journal of Industrial Economics, Wiley Blackwell, vol. 71(2), pages 570-592, June.
    4. Wei Zhou & Zidong Wang, 2020. "Competing for Search Traffic in Query Markets: Entry Strategy, Platform Design, and Entrepreneurship," Working Papers 20-12, NET Institute.
    5. Joo, Mingyu & Kim, Seung Hyun & Ghose, Anindya & Wilbur, Kenneth C., 2023. "Designing Distributed Ledger technologies, like Blockchain, for advertising markets," International Journal of Research in Marketing, Elsevier, vol. 40(1), pages 12-21.
    6. Brett R Gordon & Kinshuk Jerath & Zsolt Katona & Sridhar Narayanan & Jiwoong Shin & Kenneth C Wilbur, 2019. "Inefficiencies in Digital Advertising Markets," Papers 1912.09012, arXiv.org, revised Feb 2020.
    7. Massimo Motta & Antonio Penta, 2022. "Market effects of sponsored search auctions," Economics Working Papers 1844, Department of Economics and Business, Universitat Pompeu Fabra.
    8. Stephanie Assad & Robert Clark & Daniel Ershov & Lei Xu, 2020. "Algorithmic Pricing and Competition: Empirical Evidence from the German Retail Gasoline Market," CESifo Working Paper Series 8521, CESifo.
    9. Hangcheng Zhao & Ron Berman, 2025. "Algorithmic Collusion of Pricing and Advertising on E-commerce Platforms," Papers 2508.08325, arXiv.org, revised Oct 2025.
    10. German Caruso & Valerie Mueller & Alexis Villacis, 2024. "Leveraging unsupervised machine learning to examine women's vulnerability to climate change," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 46(4), pages 1355-1378, December.
    11. N. M. Rozanova, 2025. "Digital Economy Cartels," Studies on Russian Economic Development, Springer, vol. 36(1), pages 135-140, February.
    12. Shota Ichihashi & Alex Smolin, 2023. "Buyer-Optimal Algorithmic Recommendations," Papers 2309.12122, arXiv.org, revised Jun 2025.
    13. Lin, Haizhen & Wang, Yanhao, 2025. "The value of group purchasing: Evidence from the U.S. hospital industry," Journal of Public Economics, Elsevier, vol. 247(C).
    14. Zennyo, Yusuke, 2024. "A model of mobile app and ad platform markets," International Journal of Industrial Organization, Elsevier, vol. 97(C).
    15. Marcel Wieting & Geza Sapi, 2021. "Algorithms in the Marketplace: An Empirical Analysis of Automated Pricing in E-Commerce," Working Papers 21-06, NET Institute.
    16. Zhang, Xiaoqian & Huang, Bin, 2022. "Does bank competition inhibit the formation of zombie firms?," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 1045-1060.
    17. Kittaka, Yuta & Sato, Susumu & Zennyo, Yusuke, 2023. "Self-preferencing by platforms: A literature review," Japan and the World Economy, Elsevier, vol. 66(C).
    18. W. Jason Choi & Amin Sayedi, 2024. "Agency Market Power and Information Disclosure in Online Advertising," Marketing Science, INFORMS, vol. 43(6), pages 1279-1298, November.
    19. Sviták, Jan & Tichem, Jan & Haasbeek, Stefan, 2021. "Price effects of search advertising restrictions," International Journal of Industrial Organization, Elsevier, vol. 77(C).
    20. Maximilian Schäfer & Geza Sapi, 2020. "Learning from Data and Network Effects: The Example of Internet Search," Discussion Papers of DIW Berlin 1894, DIW Berlin, German Institute for Economic Research.
    21. Joan Calzada & Nestor Duch-Brown & Ricard Gil, 2021. "Do search engines increase concentration in media markets?," UB School of Economics Working Papers 2021/415, University of Barcelona School of Economics.
    22. Ajit Desai, 2023. "Machine learning for economics research: when, what and how," Staff Analytical Notes 2023-16, Bank of Canada.

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    More about this item

    JEL classification:

    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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