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Bidding with Budgets: Data-Driven Bid Algorithms in Digital Advertising

Author

Listed:
  • Bergemann, Dirk
  • Bonatti, Alessandro
  • Wu, Nick

Abstract

In digital advertising, auctions determine the allocation of sponsored search, sponsored product, or display advertisements. The bids in these auctions for attention are largely generated by auto-bidding algorithms that are driven by platform-provided data. We analyze the equilibrium properties of a sequence of increasingly sophisticated auto-bidding algorithms. First, we consider the equilibrium bidding behavior of an individual advertiser who controls the auto-bidding algorithm through the choice of their budget. Second, we examine the interaction when all bidders use budget-controlled bidding algorithms. Finally, we derive the bidding algorithm that maximizes the platform revenue while ensuring that all advertisers continue to participate.

Suggested Citation

  • Bergemann, Dirk & Bonatti, Alessandro & Wu, Nick, 2025. "Bidding with Budgets: Data-Driven Bid Algorithms in Digital Advertising," CEPR Discussion Papers 20263, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:20263
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    File URL: https://cepr.org/publications/DP20263
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    Keywords

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    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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