Abstract

http://ssrn.com/abstract=2053319
 
 

References (23)



 
 

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Competitive Poaching in Sponsored Search Advertising and Its Strategic Impact on Traditional Advertising


Amin Sayedi


Carnegie Mellon University - David A. Tepper School of Business

Kinshuk Jerath


Columbia University - Columbia Business School

Kannan Srinivasan


Carnegie Mellon University - David A. Tepper School of Business

May 7, 2012


Abstract:     
Traditional advertising, such as TV and print advertising, primarily builds awareness of a firm's product among consumers. On the other hand, sponsored search advertising can target consumers in a later stage of the purchase process because they self-identify themselves by searching for a relevant keyword on a search engine. The ability to target these consumers who are closer to making a purchase induces competitors to "poach" these consumers by directly advertising on the firm's keywords. Using a game theory model, we study how competing firms should allocate their advertising budgets, and how a search engine should design the sponsored search position auction for deciding the order in which advertisers are displayed. We find that symmetric firms may follow asymmetric advertising strategies, with one firm focusing on traditional advertising and the other firm focusing on sponsored search with poaching. Interestingly, the search engine benefits from handicapping poaching, i.e., it benefits from discouraging competition in its own auctions. This explains why search engines such as Google, Yahoo! and Bing use "keyword relevance" scores to under-weight the bids of firms bidding on competitors' keywords. We also obtain various other interesting insights on the interplay between sponsored search advertising and traditional advertising.

Number of Pages in PDF File: 50

Keywords: Advertising channels, sponsored search, consumer purchase stages, game theory, auctions, poaching, bidding on trademark keywords

JEL Classification: D44, M31, M37

working papers series


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Date posted: May 7, 2012  

Suggested Citation

Sayedi, Amin and Jerath, Kinshuk and Srinivasan, Kannan, Competitive Poaching in Sponsored Search Advertising and Its Strategic Impact on Traditional Advertising (May 7, 2012). Available at SSRN: http://ssrn.com/abstract=2053319 or http://dx.doi.org/10.2139/ssrn.2053319

Contact Information

Amin Sayedi
Carnegie Mellon University - David A. Tepper School of Business ( email )
5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
Kinshuk Jerath (Contact Author)
Columbia University - Columbia Business School ( email )
3022 Broadway
New York, NY 10027
United States

Kannan Srinivasan
Carnegie Mellon University - David A. Tepper School of Business ( email )
5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
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