Working Paper: NBER ID: w23962
Authors: Francesco Decarolis; Maris Goldmanis; Antonio Penta
Abstract: The transition of the advertising market from traditional media to the internet has induced a proliferation of marketing agencies specialized in bidding in the auctions that are used to sell ad space on the web. We analyze how collusive bidding can emerge from bid delegation to a common marketing agency and how this can undermine the revenues and allocative efficiency of both the Generalized Second Price auction (GSP, used by Google and Microsoft-Bing and Yahoo!) and the VCG mechanism (used by Facebook). We find that, despite its well-known susceptibility to collusion, the VCG mechanism outperforms the GSP auction both in terms of revenues and efficiency.
Keywords: Online Advertising; Collusion; Bidding; Marketing Agencies; Auction Theory
JEL Codes: C72; D44; D47; L81; M37
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| collusive bidding when advertisers delegate to a common marketing agency (L14) | undermines revenues and allocative efficiency of the GSP auction (D44) |
| GSP auction's fragility exacerbated by agency bidding (D44) | agencies can manipulate bids to lower payments strategically (D44) |
| VCG mechanism outperforming GSP (D58) | direct causal relationship between the auction format and its performance metrics (D44) |
| bid coordination (D44) | lower revenues for the auctioneer and reduced efficiency (D44) |