Multi-Platform Search-Based Advertising

This dissertation studies three problems in the context of multi-platform search-based advertising. “Search-based advertising” refers to the type of advertising that is initiated by a customer’s search activity. It includes, but not limited to, Google and Bing’s keyword advertising, Amazon and eBay’s sponsored links, and Expedia and Priceline’s targeted ads. I explore strategic interactions of three different agents in this environment: consumers, advertisers and search platforms. The first part of the dissertation analyzes advertisers’ bid coordination across platforms. I develop a model in which consumers repeatedly use two search platforms, and advertisers compete for advertising spaces in these platforms. I find that advertisers’ may optimally coordinate their bids across platforms such that they are assigned to a prominent position in one platform and a less prominent one in the other. The second part of this proposal investigates advertisers’ budget allocation across platforms when they have limited online advertising budgets. The focus of this essay is what fraction of budget an advertiser should assign to Google versus Bing. We find that the degree of heterogeneity in budgets is an important factor influencing advertisers’ decision. In particular, if budgets are far away, it is optimal for them to allocate their budgets exactly proportional to platforms’ traffic, e.g. 20% to Bing and 80% to Google. If budgets are close, on the other hand, advertisers specialize by allocating relatively higher fraction of budget to one platform and lower fraction to the other. Finally, the third part examines the profitability of search advertising when advertiser and host of the ad are direct competitors, i.e., they both sell a similar product. For example, Wal-Mart hosts banner ads for TVs from Sears to customers searching for TVs on Walmart.com, risking a loss of customers in exchange for the commission. I explore whether and under what conditions allowing competitor advertising in one’s store may be a beneficial strategy. I find that hosting competitor ads can mitigate price competition and boost profits of firms if the advertising firm pays a high enough commission on the customer traffic it receives through such ads. This can explain why Expedia, for example, provides a link to its own customers encouraging them to compare prices with Priceline.com, its direct rival.