Quality Score: The Cost of a Virtuous Cycle

50 Pages Posted: 20 Apr 2017 Last revised: 27 Jul 2020

See all articles by Zsolt Katona

Zsolt Katona

University of California, Berkeley - Haas School of Business

Yi Zhu

University of Minnesota - Carlson School of Management

Lei Zhuang

University of Minnesota - Twin Cities

Date Written: July 24, 2020

Abstract

Search engines and many social advertising platforms use the so-called quality score to
favor certain advertisers in their advertising auction. While the standard justification for
quality scores is the need to provide discounts to advertisers with higher click-through rates,
this work examines the role of quality score in enticing heterogeneous advertisers to invest
in quality and its impact on ad platforms’ revenue. The results suggest that a quality
score function that rewards bidders in excess of their click-through rates does increase the
quality investments but in a non-monotonic way. Higher rewards of landing page quality
do not necessarily mean higher investments. Furthermore, such an improvement in quality
levels often comes with a sacrifice of the auction revenue despite the higher bids. While the
potential revenue impact for the auctioneer depends on the bidding strategies and auction
formats, there exists a quality score function that ensures increased revenues by rewarding
quality improvement. Several managerial implications for both advertisers and publishers
are discussed.

Keywords: Position Auctions, Generalized Second-Price Auctions, Quality Score, Landing Page Quality, Internet Marketing, Online Advertising, Game Theory

Suggested Citation

Katona, Zsolt and Zhu, Yi and Zhuang, Lei, Quality Score: The Cost of a Virtuous Cycle (July 24, 2020). Available at SSRN: https://ssrn.com/abstract=2954707 or http://dx.doi.org/10.2139/ssrn.2954707

Zsolt Katona (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

Yi Zhu

University of Minnesota - Carlson School of Management ( email )

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

Lei Zhuang

University of Minnesota - Twin Cities ( email )

420 Delaware St. SE
Minneapolis, MN 55455
United States

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