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The Benefits of Position Auctions: Targeted Advertising and User Behavior Analysis

This paper discusses the benefits of position auctions in online advertising, including the ability to target specific consumers, meter user behavior, provide performance feedback, and their rapid growth as an effective advertising tool. It also highlights the need for further research in this area.

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The Benefits of Position Auctions: Targeted Advertising and User Behavior Analysis

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  1. Chen and He: “Paid Placement: Advertising and Search on the Internet” NET Institute conference April 20, 2007 Discussant: Yossi Spiegel

  2. Benefits of position auctions • Target consumers • Meter user behavior - can price clicks rather than impressions • Provide performance feedback • Position auctions grow rapidly due to the fact that they are effective advertising tool Chen and He: “Paid Placement”

  3. This paper • Characterizes the equilibrium in a generalized second price position auction • Nice model, clean analysis • But what’s the bottom line? • More work is needed… Chen and He: “Paid Placement”

  4. Many closely related papers – the relationship should be addressed • Varian – (forthcoming in JIE) • Edelman and Ostrovsky (forthcoming in Decision Support Systems) • Edelman, Ostrovsky, and Schwartz (AER, 2007) • Edelman et al (Mimeo) • Liu and Chen (Decision Support Systems, 2006) • Lahaie (ACM Conf. of E-Commerce, 2006) • Aggarwal, Goel, Motwani (ACM conf. of E-commerce, 2006) • Aminesh, Ramachandran and Vishwanathan (27th ICIS) • Abrams and Ghosh (workshop on Sponsored Search, 2007) • Abrams, Ghosh and Vee (workshop on Sponsored Search, 2007) • Abrams, Mandelevitch, and Tomlin (ACM conf. of E-commerce, 2007) • Parkes and Sandholm (ACM conf. of E-commerce, 2005) • Goodman (ACM conf. of E-commerce, 2005) • Bu, Deng, and Qi (WWW, 2007) Chen and He: “Paid Placement”

  5. Related practices • Payola (recording studios pay radio stations for playing certain music) • Slotting allowances (manufacturers pay supermarkets for shelf space) • “Co-op advertising” in book stores (publishers pay Barnes and Noble for guaranteed placement in the front of the stores) • “Compensating brokerage firms for shelf space” (mutual funds pay brokerage firms for recommending them to clients) • Computer reservation systems (airlines ownership of CRS enables them to display their flight on the first displayed screen) • All of these practices involve “essential facilities” or “bottlenecks” • The main concern with these practices is that they may foreclose small competitors and create high BTE • Would position auctions also hurt small firms and lead to higher concentration? Chen and He: “Paid Placement”

  6. Extensions • Multiple keywords – how do I allocate an advertising budget among multiple keywords (would advertisers wish to divide the market with each “monopolizing” a different keyword or would they compete head-to-head? • Multiple search engines - (should all search engines adopt the same format? What happens when one search engine is smaller?) • Competition with other forms of advertising • Advertising budget constraints (how to compete? how to design the auction?) • Auction design: • Pay per click or pay per auction? • Rank by bid vs. rank by “expected” revenue (bid times exp. number of clicks?) • First-price (like GoTo) or Second-price (like Google)? • How much information to provide (about the history, about past bids)? • Reserve prices • Prevent Click-fraud (which exhausts rivals’ budgets) Chen and He: “Paid Placement”

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