Working Paper: CEPR ID: DP18087
Authors: Dirk Bergemann; Alessandro Bonatti; Nick Wu
Abstract: We develop an auction model for digital advertising. A monopoly platform has access to data on the value of the match between advertisers and consumers. The platform support bidding with additional information and increase the feasible surplus for on-platform matches. Advertisers jointly determine their pricing strategy both on and off the platform, as well as their bidding for digital advertising on the platform. We compare a data-augmented second-price auction and a managed campaign mechanism. In the data-augmented auction, the bids by the advertisers are informed by the data of the platform regarding the value of the match. This results in a socially efficient allocation on the platform, but the advertisers increase their product prices off the platform to be more competitive on the platform. In consequence, the allocation off the platform is inefficient due to excessively high product prices. The managed campaign mechanism allows advertisers to submit budgets that are then transformed into matches and prices through an autobidding algorithm. Compared to the data-augmented second-price auction, the optimal managed campaign mechanism increases the revenue of the digital platform. The product prices off theplatform increase and the consumer surplus decreases.
Keywords: data; advertising; competition; digital platforms; auctions; automated bidding; managed advertising campaigns; matching; price discrimination
JEL Codes: D44; D82; D83
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Data-augmented second-price auctions (D44) | efficient allocations on-platform (D61) |
| Data-augmented second-price auctions (D44) | higher off-platform prices (P22) |
| higher off-platform prices (P22) | inefficiencies (D61) |
| on-platform consumers (D16) | higher off-platform prices (P22) |
| sophisticated managed campaign mechanism (D72) | platform revenue (D26) |
| sophisticated managed campaign mechanism (D72) | weaken competition (L49) |
| weaken competition (L49) | higher off-platform prices (P22) |
| Managed campaigns (M31) | platform revenue (D26) |
| Managed campaigns (M31) | higher off-platform prices (P22) |
| higher off-platform prices (P22) | decrease in consumer surplus (D11) |