Competition and Specificity in Market Design: Evidence from Geotargeted Advertising

48 Pages Posted: 4 Nov 2018 Last revised: 6 Mar 2020

See all articles by Bo Cowgill

Bo Cowgill

Columbia University - Columbia Business School

Cosmina Dorobantu

The Alan Turing Institute

Date Written: February 20, 2020

Abstract

How should market designers tradeoff competition and specificity? We study a natural experiment in the release of new advertising targeting technology. The platform in our study introduced targeting into select geographic markets using a regression discontinuity. We find that advertisers use new targeting to avoid low quality ad inventory. This leads to a reduction in the growth of ad impressions. When advertisers avoid this useless inventory, they retreat into smaller, less competitive ad auctions featuring fewer competitors for available ad space. This reduction in competition lowers click prices in the treated areas. Nonetheless, the effects on platform revenue growth are positive. Better targeting improves the consumer experience of advertising. This leads to higher consumer clickthrough rates, which raises revenue by increasing the quantity of clicks sold and offsetting the decrease in prices.

Suggested Citation

Cowgill, Bo and Dorobantu, Cosmina, Competition and Specificity in Market Design: Evidence from Geotargeted Advertising (February 20, 2020). NET Institute Working Paper No. 18-09, Columbia Business School Research Paper No. 101, Available at SSRN: https://ssrn.com/abstract=3267053 or http://dx.doi.org/10.2139/ssrn.3267053

Bo Cowgill (Contact Author)

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Cosmina Dorobantu

The Alan Turing Institute ( email )

96 Euston Road
London, NW1 2DB
United Kingdom

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