To Sponsor or Not to Sponsor: Sponsored Search Auctions with Organic Links

32 Pages Posted: 5 Jun 2014

See all articles by Michael A. Arnold

Michael A. Arnold

University of Delaware - Alfred Lerner College of Business and Economics

Eric Darmon

Centre de Recherche en Économie et Management (CREM)

Thierry Pénard

Université de Rennes 1 - Faculte de Sciences Economiques; Armorican Mole for Research on the Information Society and Uses of the Internet; Centre de Recherche en Économie et Management (CREM)

Date Written: April 10, 2013

Abstract

Sponsored search advertisements are an essential component of e-marketing strategies and a substantial source of revenue for search engines. Most sponsored ads are sold through keyword auctions. We analyze a game-theoretic model to explore the impact of organic links (links generated by the search engine algorithm) on …firms' ’bidding strategies in sponsored link keyword auctions. In contrast to results in earlier literature, we find that with organic links the firm with the highest value per click does not necessarily win the …first sponsored position, it may be optimal for a …firm to bid an amount greater than the expected value (or sale) from a click, and …firms may choose not to bid even if they would incur no cost for the sponsored link.

Keywords: Online advertising, Sponsored links, Position auctions, Search engine

JEL Classification: D44, L86, M37

Suggested Citation

Arnold, Michael A. and Darmon, Eric and Pénard, Thierry, To Sponsor or Not to Sponsor: Sponsored Search Auctions with Organic Links (April 10, 2013). Available at SSRN: https://ssrn.com/abstract=2445921 or http://dx.doi.org/10.2139/ssrn.2445921

Michael A. Arnold

University of Delaware - Alfred Lerner College of Business and Economics ( email )

Purnell Hall
Newark, DE 19716
United States
(302) 831-1916 (Phone)
(302) 831-6968 (Fax)

Eric Darmon

Centre de Recherche en Économie et Management (CREM) ( email )

7 place Hoche
Rennes, Bretagne 35065
France

Thierry Pénard (Contact Author)

Université de Rennes 1 - Faculte de Sciences Economiques ( email )

7, Place Hoche
35000 Rennes
France

Armorican Mole for Research on the Information Society and Uses of the Internet ( email )

France

Centre de Recherche en Économie et Management (CREM) ( email )

7 place Hoche
Rennes, Bretagne 35065
France

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