Eventi del
7 2018 12:45 - 14:00
Meeting room 4-E4-SR03, Via Roentgen 1
Learning in Search Advertising
AMIN SAYEDI, University of Washington
Abstract:
Prior literature on search advertising primarily assumes that search engines know advertisers' click-through rates, the probability that a consumer clicks on an advertiser's ad. This information, however, is not available when a new advertiser starts search advertising for the first time. In particular, a new advertiser's click-through rate can be learned only if the advertiser's ad is shown to enough consumers, i.e., the advertiser wins enough auctions. Since search engines use advertisers' expected click-through rates when calculating payments and allocations, the lack of information about a new advertiser can affect new and existing advertisers' bidding strategies. In this paper, we use a game theory model to analyze advertisers' strategies, their payoffs, and the search engine's revenue when a new advertiser joins the market. Our results indicate that a new advertiser should always bid higher (sometimes above its valuation) when it starts search advertising. However, the strategy of an existing advertiser, i.e., an incumbent, depends on its valuation and click-through rate. A strong incumbent increases its bid to prevent the search engine from learning the new advertiser's click-through rate, whereas a weak incumbent decreases its bid to facilitate the learning process. Interestingly, we find that, under certain conditions, the search engine benefits from not knowing the new advertiser's click-through rate because its ignorance could induce the advertisers to bid more aggressively. Nonetheless, the search engine's revenue sometimes decreases because of this lack of information, particularly, when the incumbent is sufficiently strong. We show that the search engine can mitigate this loss, and improve its total profit, by offering free advertising credit to new advertisers.
Prior literature on search advertising primarily assumes that search engines know advertisers' click-through rates, the probability that a consumer clicks on an advertiser's ad. This information, however, is not available when a new advertiser starts search advertising for the first time. In particular, a new advertiser's click-through rate can be learned only if the advertiser's ad is shown to enough consumers, i.e., the advertiser wins enough auctions. Since search engines use advertisers' expected click-through rates when calculating payments and allocations, the lack of information about a new advertiser can affect new and existing advertisers' bidding strategies. In this paper, we use a game theory model to analyze advertisers' strategies, their payoffs, and the search engine's revenue when a new advertiser joins the market. Our results indicate that a new advertiser should always bid higher (sometimes above its valuation) when it starts search advertising. However, the strategy of an existing advertiser, i.e., an incumbent, depends on its valuation and click-through rate. A strong incumbent increases its bid to prevent the search engine from learning the new advertiser's click-through rate, whereas a weak incumbent decreases its bid to facilitate the learning process. Interestingly, we find that, under certain conditions, the search engine benefits from not knowing the new advertiser's click-through rate because its ignorance could induce the advertisers to bid more aggressively. Nonetheless, the search engine's revenue sometimes decreases because of this lack of information, particularly, when the incumbent is sufficiently strong. We show that the search engine can mitigate this loss, and improve its total profit, by offering free advertising credit to new advertisers.