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Hybrid Advertising Auctions

2009 INFORMS Marketing Science Conference

NET Institute Working Paper No. 08-25

57 Pages Posted: 2 Apr 2009 Last revised: 26 Oct 2012

Yi Zhu

University of Minnesota - Carlson School of Management

Kenneth C. Wilbur

University of California, San Diego (UCSD) - Rady School of Management

Date Written: August 21, 2010

Abstract

Facebook and Google offer hybrid advertising auctions that allow advertisers to bid on a per-impression or a per-click basis for the same advertising space. This paper studies the properties of equilibrium and considers how to increase efficiency in this new auction format. Rational expectations require the publisher to consider past bid types in order to prevent revenue losses to strategic advertiser behavior. The equilibrium results contradict publisher statements and suggest that, conditional on setting rational expectations, publishers should consider offering multiple bid types to advertisers. For a special case of the model, we provide a payment scheme that achieves the socially optimal allocation of advertisers to slots and maximizes publisher revenues within the class of socially optimal payment schemes. When this special case does not hold, no payment scheme will always achieve the social optimum.

Keywords: Advertising, Auctions, Internet Marketing, Search Advertising

Suggested Citation

Zhu, Yi and Wilbur, Kenneth C., Hybrid Advertising Auctions (August 21, 2010). 2009 INFORMS Marketing Science Conference; NET Institute Working Paper No. 08-25. Available at SSRN: https://ssrn.com/abstract=1371758 or http://dx.doi.org/10.2139/ssrn.1371758

Yi Zhu

University of Minnesota - Carlson School of Management ( email )

321 - 19th Ave. South, Suite 3-150
Minneapolis, MN 55455
United States

Kenneth C. Wilbur (Contact Author)

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

HOME PAGE: http://kennethcwilbur.com

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