Auctioning Keywords in Online Search

Journal of Marketing, Vol. 73, No. 4, pp. 125-141, 2009

Posted: 11 May 2006 Last revised: 15 Feb 2014

Jianqing Chen

The University of Texas at Dallas, Jindal School of Management

De Liu

University of Minnesota - Twin Cities - Carlson School of Management

Andrew B. Whinston

University of Texas at Austin - Department of Information, Risk and Operations Management

Date Written: May 4, 2006

Abstract

Keyword advertising, or "sponsored links" that appear alongside online search results or other online content, has grown into a multibillion-dollar market. Providers of keyword advertising, such as Google and Yahoo!, profit by auctioning keywords to advertisers. One issue of increasing importance for advertising providers is the "share structure" problem; that is, out of the total available resources for each keyword (in terms of exposure), how large a share should be set aside for the highest bidder, for the second highest bidder, and so on. We study this problem under a general specification and characterize the optimal share structures that maximize advertising providers' revenues. We also derive results on how the optimal share structure should change with advertisers' price elasticity of demand for exposure, their valuation distribution, total resources, and minimum bids. We draw implications for keyword auctions and other applications.

Keywords: keyword advertising, sponsored links, share structures, search engine, Internet auctions, divisible goods, Google, Yahoo!

JEL Classification: D44, M37, C72

Suggested Citation

Chen, Jianqing and Liu, De and Whinston, Andrew B., Auctioning Keywords in Online Search (May 4, 2006). Journal of Marketing, Vol. 73, No. 4, pp. 125-141, 2009. Available at SSRN: https://ssrn.com/abstract=900603

Jianqing Chen (Contact Author)

The University of Texas at Dallas, Jindal School of Management ( email )

800 West Campbell Road
Richardson, TX 75080
United States

De Liu

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

Andrew B. Whinston

University of Texas at Austin - Department of Information, Risk and Operations Management ( email )

CBA 5.202
Austin, TX 78712
United States
512-471-8879 (Phone)

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