Optimal auction design in two-sided markets
A key feature of online markets for advertising (e.g., sponsored links) is that clicking rates depend on the searchers' expectations that the platform selects relevant advertisers. This article studies auction design by a platform that maximizes profits in the long run, where clicking rates are...
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Published in | The Rand journal of economics Vol. 45; no. 2; pp. 248 - 272 |
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Main Author | |
Format | Journal Article |
Language | English |
Published |
Santa Monica
Blackwell Publishing Ltd
01.06.2014
Wiley Periodicals, Inc Wiley Subscription Services, Inc Rand Corporation |
Subjects | |
Online Access | Get full text |
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Summary: | A key feature of online markets for advertising (e.g., sponsored links) is that clicking rates depend on the searchers' expectations that the platform selects relevant advertisers. This article studies auction design by a platform that maximizes profits in the long run, where clicking rates are mechanism dependent. In line with the practice of the major search engines, the revenue-maximizing mechanism is a scoring auction that combines the willingness to pay and the relevance to searchers of advertisers. By trading offrent extraction and clicking volume, this mechanism works as a cross-subsidization device between searchers and advertisers. |
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Bibliography: | istex:C461EBEC7B122A38FD75301E358675C562786E15 ArticleID:RAND12050 ark:/67375/WNG-891TL1XT-W A previous version of this article circulated with the title “Mechanism Design in Two‐Sided Markets: Auctioning Users.” I am grateful to the editor, Mark Armstrong, and two anonymous referees for very helpful and detailed comments. I would like to thank my doctoral committee, Alessandro Pavan, Marco Ottaviani, Rakesh Vohra, and William Rogerson for their support and encouragement, as well as Jacques Crémer, Yassine Lefouili, Carlos Madeira, Shiran Rachmilevitch, James Schummer, Ron Siegel, Michael Whinston, and Asher Wolinsky for very helpful conversations. I benefited from discussions at seminars and conferences at Northwestern, Cornell, Bonn, Maastricht, MIT Sloan, Arizona State, Boston University, Toulouse, Bocconi, Collegio Carlo Alberto, Puc‐Rio, ZEW Conference on Platform Markets 2010, Econometric Society World Congress 2010, and INTERTIC 2010. The usual disclaimer applies. ObjectType-Article-2 SourceType-Scholarly Journals-1 ObjectType-Feature-1 content type line 23 |
ISSN: | 0741-6261 1756-2171 |
DOI: | 10.1111/1756-2171.12050 |