Abstract

http://ssrn.com/abstract=2062980
 


 



An Analysis of the Impact of Advertising Budget in Position Auctions


Shijie Lu


University of Southern California - Marshall School of Business

Yi Zhu


University of Minnesota - Carlson School of Management

April 2013


Abstract:     
The existence of a daily budget is a central feature in position auctions adopted by online advertising publishers. This paper examines the impact of budget constraints on advertisers’ bidding behavior and presents the revenue analysis of budgets in position auctions. The equilibrium analysis shows that setting a larger budget can bring advertisers an additional competitive advantage in position auctions: an advertiser with a lower value-per-click can win a better position, if her daily budget is large enough. Counterintuitively, the publisher’s revenue can strictly decrease with advertisers’ budgets, especially with high-value advertisers. Furthermore, by endogenizing advertisers’ budget decisions, we find an inverted-U relationship between the publisher’s revenue and the opportunity cost of advertising budgets. Several important managerial implications for both advertisers and publishers are discussed.

Number of Pages in PDF File: 58

Keywords: Advertising, Budget Constraints, Position Auctions, Internet Marketing, Game Theory

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Date posted: May 20, 2012 ; Last revised: April 28, 2013

Suggested Citation

Lu, Shijie and Zhu, Yi, An Analysis of the Impact of Advertising Budget in Position Auctions (April 2013). Available at SSRN: http://ssrn.com/abstract=2062980 or http://dx.doi.org/10.2139/ssrn.2062980

Contact Information

Shijie Lu
University of Southern California - Marshall School of Business ( email )
701 Exposition Blvd
Los Angeles, CA 90089
United States
Yi Zhu (Contact Author)
University of Minnesota - Carlson School of Management ( email )
321 - 19th Ave. South, Suite 3-150
Minneapolis, MN 55455
United States
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