Double Marginalization and Misplacement in Online Advertising

36 Pages Posted: 21 Sep 2021

See all articles by Alexander White

Alexander White

Tsinghua University - School of Economics & Management

Kamal Jain

Amazon

Shota Ichihashi

Bank of Canada

Byung-Cheol Kim

University of Alabama

Multiple version iconThere are 3 versions of this paper

Date Written: September 16, 2021

Abstract

Internet users often visit multiple ad-financed websites as a bundle to fulfill their needs. We ask whether complementary websites have the right incentives to choose their advertising policies. We identify two forces that distort equilibrium away from the industry optimum and the efficient outcome. First, websites place more ads than the industry optimum (double marginalization). Second, given the total advertising volume at equilibrium, websites misallocate ads across websites (misplacement). Perfect competition in one market segment eliminates double marginalization but may exacerbate misplacement. The potential trade-off challenges conventional wisdom that competition would restore the industry optimum. Introducing micropayments removes misplacement, but the welfare consequences are ambiguous.

Keywords: Platforms, Advertising, Misplacement, Double Marginalization, Competition

JEL Classification: D21, D40, L23, L42, L86

Suggested Citation

White, Alexander and Jain, Kamal and Ichihashi, Shota and Kim, Byung-Cheol, Double Marginalization and Misplacement in Online Advertising (September 16, 2021). Available at SSRN: https://ssrn.com/abstract=3926873 or http://dx.doi.org/10.2139/ssrn.3926873

Alexander White (Contact Author)

Tsinghua University - School of Economics & Management ( email )

Mailbox A-44
Weilun Building
Beijing, 100084
China

HOME PAGE: http://alex-white.net

Kamal Jain

Amazon ( email )

Shota Ichihashi

Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

Byung-Cheol Kim

University of Alabama ( email )

Culverhouse College of Business
Tuscaloosa, AL 35487-0223
United States
7708462727 (Phone)
7708462727 (Fax)

HOME PAGE: http://bkim.people.ua.edu/

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