Working Paper: CEPR ID: DP13897
Authors: Francesco Decarolis; Gabriele Rovigatti
Abstract: This paper analyzes the impact of intermediary concentration on the allocation of revenues in online platforms. We study sponsored search documenting how advertisers increasingly bid through a handful of specialized intermediaries. This enhances automated bidding and data pooling, but lessens competition whenever the intermediary represents competing advertisers. Using data on nearly 40 million Google keyword auctions, we first apply machine learning algorithms to cluster keywords into thematic groups serving as relevant markets. Using an instrumental variable strategy, we estimate a decline in the platform's revenues of approximately 11 percent due to the average rise in concentration associated with intermediary M&A activity.
Keywords: buyer power; concentration; online advertising; platforms; sponsored search
JEL Codes: C72; D44; L81
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| greater network concentration (D85) | lower search engine revenue (H27) |
| increase in HHI of 245 points (L19) | lower search engine revenue (H27) |
| greater concentration (D30) | lower average CPC (D49) |
| demand concentration (D30) | lower average CPC (D49) |