Competing ad auctions
By: Itai Ashlagi, Ben Edelman, Hoan Soo Lee
Contributors: Edelman, Benjamin; Lee, Hoan Soo; Harvard Business School
Edition: 2nd rev.
Series: Working paper / Harvard Business School -- 10-055; Working paper (Harvard Business School) -- 10-055.
Publisher: Harvard Business School
Published: 2010
Place of publication: [Boston]
Language: eng
Number of pages: 20
Description: We present a two-stage model of competing ad auctions. Search engines attract users via Cournot-style competition. Meanwhile, each advertiser must pay a participation cost to use each ad platform, and advertiser entry strategies are derived using symmetric Bayes-Nash equilibrium that lead to the VCG outcome of the ad auctions. Consistent with our model of participation costs, we find empirical evidence that multi-homing advertisers are larger than single-homing advertisers. We then link our model to search engine market conditions: We derive comparative statics on consumer choice parameters, presenting relationships between market share, quality, and user welfare. We also analyze the prospect of joining auctions to mitigate participation costs, and we characterize when such joins do and do not increase welfare.
Notes: "January 2010, revised May 2010, February 2011"--Publisher's website.

Includes bibliographical references.