An Analysis of the Impact of Advertising Budget in Position Auctions
University of Southern California - Marshall School of Business
University of Minnesota - Carlson School of Management
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 Theoryworking papers series
Date posted: May 20, 2012 ; Last revised: April 28, 2013
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