From Mad Men to Maths Men: Concentration and Buyer Power in Online Advertising

58 Pages Posted: 2 Aug 2019 Last revised: 28 May 2020

See all articles by Francesco Decarolis

Francesco Decarolis

Bocconi University - Department of Economics

Gabriele Rovigatti

ZEW – Leibniz Centre for European Economic Research

Date Written: July 2019

Abstract

This paper analyzes the impact of intermediary concentration on the allocation of revenues in online platforms. We study sponsored search documenting how advertisers increasingly bid through a handful of specialized intermediaries. This enhances automated bidding and data pooling, but lessens competition whenever the intermediary represents competing advertisers. Using data on nearly 40 million Google keyword auctions, we first apply machine learning algorithms to cluster keywords into thematic groups serving as relevant markets. Using an instrumental variable strategy, we estimate a decline in the platform's revenues of approximately 11 percent due to the average rise in concentration associated with intermediary M&A activity.

Keywords: Buyer Power, Concentration, online advertising, platforms, Sponsored Search

JEL Classification: C72, D44, L81

Suggested Citation

Decarolis, Francesco and Rovigatti, Gabriele, From Mad Men to Maths Men: Concentration and Buyer Power in Online Advertising (July 2019). CEPR Discussion Paper No. DP13897, Available at SSRN: https://ssrn.com/abstract=3428421

Francesco Decarolis (Contact Author)

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

Gabriele Rovigatti

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

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