Paid Placement: Advertising and Search on the Internet

30 Pages Posted: 12 Oct 2006

See all articles by Yongmin Chen

Yongmin Chen

University of Colorado at Boulder - Department of Economics

Chuan He

University of Colorado at Boulder - Leeds School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: September 2006

Abstract

Paid placement, where advertisers bid payments to a search engine to have their products appear next to keyword search results, has emerged as a predominant form of advertising on the Internet. This paper studies a product-differentiation model where consumers are initially uncertain about the desirability of and valuation for different sellers' products, and can learn about a seller's product through a costly search. In equilibrium, a seller bids more for placement when his product is more relevant for a given keyword, and the paid placement of sellers by the search engine reveals information about the relevance of their products. This results in efficient (sequential) search by consumers and increases total output.

Keywords: Paid placement, Advertising, Auction, E-commerce, Search

Suggested Citation

Chen, Yongmin and He, Chuan, Paid Placement: Advertising and Search on the Internet (September 2006). NET Institute Working Paper No. 06-02. Available at SSRN: https://ssrn.com/abstract=936472 or http://dx.doi.org/10.2139/ssrn.936472

Yongmin Chen (Contact Author)

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309-0256
United States
303-492-8736 (Phone)
303-492-8960 (Fax)

Chuan He

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

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