Title: Topics in Internet advertising
Description: This thesis consists of three essays about Internet advertising. The first essay considers instability resulting from market rules in early pay-per-click advertising. The second presents modern pay-per-click advertising and associated advertiser strategies. The third analyzes certain certifications widely used to promote both legitimate and illegitimate web sites. Pay-per-click advertising began with first-price auctions, where advertisers' payments equaled their own bids. This pricing rule gave rise to cycling, as shown in the first essay. The first essay also demonstrates that an alternative pricing rule could have eliminated cycling while increasing search engines' revenues in "popular" keyword markets consistent with current conditions. Developments in search engine advertising brought the generalized second-price auction. Although this mechanism looks similar to the Vickrey-Clarke-Groves mechanism, its properties are importantly different. In particular, GSP generally does not have an equilibrium in dominant strategies, and truth-telling is not an equilibrium of GSP. The second essay offers the unique equilibrium of the generalized English auction that corresponds to GSP, shows that this equilibrium is ex post, and confirms that it yields payoffs identical to those under the dominant strategy of VCG. In sharp contrast to the well-defined mechanisms of search engine advertising, certain online "trust" certifications lack precise rules for participation. My third essay analyzes two such certification systems. As to the more widespread certification, I demonstrate that certified sites are actually less trustworthy than sites that forego certification. I also present analogous results as to search engine advertising--finding ads at leading search engines to be more than twice as likely to be untrustworthy as corresponding organic search results for the same search terms.