Position Auctions with Budget-Constraints: Implications for Advertisers and Publishers

Marketing Science, Forthcoming

51 Pages Posted: 20 May 2012 Last revised: 18 Apr 2017

Shijie Lu

University of North Carolina at Chapel Hill

Yi Zhu

University of Minnesota - Carlson School of Management

Anthony J. Dukes

University of Southern California - Marshall School of Business

Date Written: June 21, 2015

Abstract

This paper examines position auctions with budget-constrained advertisers, a dominant bidding environment used by publishers to allocate positions in online advertising. Budget constraints play a crucial role in equilibrium bidding by inducing advertisers to strategically deplete a higher-ranked advertiser’s budget to gain in rank. This strategic consideration has consequences for both advertisers’ profits and the publisher’s revenue. An advertiser’s profit can strictly decrease with her budget when competition for an advertising space (e.g., a keyword) is intense. The publisher’s revenue can also strictly decrease when an increase in the higher-ranked advertiser’s budget induces the lower-ranked rival to reduce her bid, due to her inability to deplete the higher-ranked advertiser’s budget. Several managerial implications for both advertisers and publishers are discussed.

Keywords: Position Auctions, Generalized Second-Price Auctions, Budget Constraints, Internet Marketing, Online Advertising, Game Theory.

Suggested Citation

Lu, Shijie and Zhu, Yi and Dukes, Anthony J., Position Auctions with Budget-Constraints: Implications for Advertisers and Publishers (June 21, 2015). Marketing Science, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2062980 or http://dx.doi.org/10.2139/ssrn.2062980

Shijie Lu (Contact Author)

University of North Carolina at Chapel Hill ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599
United States

Yi Zhu

University of Minnesota - Carlson School of Management ( email )

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

Anthony J. Dukes

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States
213-740-3846 (Phone)

HOME PAGE: http://www-bcf.usc.edu/~dukes/

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