Auctioning Keywords in Online Search
University of Texas at Dallas - Jindal School of Management
University of Minnesota - Twin Cities - Carlson School of Management
Andrew B. Whinston
University of Texas at Austin - Department of Information, Risk and Operations Management
May 4, 2006
Journal of Marketing, Vol. 73, No. 4, pp. 125-141, 2009
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
Date posted: May 11, 2006 ; Last revised: February 15, 2014