Working Paper: CEPR ID: DP17942
Authors: Francesco Decarolis; Maris Goldmanis; Antonio Penta; Ksenia Shakhgildyan
Abstract: Bid delegation to specialized intermediaries is common in the auction systems used to sell internet advertising. When the same intermediary concentrates the demand for ad space from competing advertisers, its incentive to coordinate client bids might alter the functioning of the auctions. This study develops a methodology to detect bid coordination, and presents a strategy to estimate a bound on the search engine revenue losses imposed by coordination relative to a counterfactual benchmark of competitive bidding. Using proprietary data from auctions held on a major search engine, coordination is detected in 55 percent of the cases of delegated bidding that we observed, and the associated upper bound on the search engine’s revenue loss ranges between 5.3 and 10.4 percent.
Keywords: Delegation; Online Advertising; Sponsored Search Auctions; Coordination
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 |
|---|---|
| presence of a common intermediary (L14) | likelihood of bid coordination occurring (D44) |
| bid coordination (D44) | revenue loss (H27) |
| independent advertisers adjust their bids (D44) | revenue loss (H27) |