Designing online auctions with past performance information
Decision Support Systems
INFORMS Journal on Computing
Revenue analysis of a family of ranking rules for keyword auctions
Proceedings of the 8th ACM conference on Electronic commerce
Dynamic cost-per-action mechanisms and applications to online advertising
Proceedings of the 17th international conference on World Wide Web
Pay-Per-Action Model for On-line Advertising
International Journal of Electronic Commerce
ICALP '09 Proceedings of the 36th Internatilonal Collogquium on Automata, Languages and Programming: Part II
Effects of the Presence of Organic Listing in Search Advertising
Information Systems Research
Dynamic Pay-Per-Action Mechanisms and Applications to Online Advertising
Operations Research
Optimal keyword auctions for optimal user experiences
Decision Support Systems
Hi-index | 0.01 |
An important current trend in advertising is the replacement of traditional pay-per-exposure (pay-per-impression) pricing models with performance-based mechanisms in which advertisers pay only for measurable actions by consumers. Such pay-per-action (PPA) mechanisms are becoming the predominant method of selling advertising on the Internet. Well-known examples include pay-per-click, pay-per-call, and pay-per-sale. This work highlights an important, and hitherto unrecognized, side effect of PPA advertising. I find that, if the prices of advertised goods are endogenously determined by advertisers to maximize profits net of advertising expenses, PPA mechanisms induce firms to distort the prices of their goods (usually upward) relative to prices that would maximize profits in settings where advertising is sold under pay-per-exposure methods. Upward price distortions reduce both consumer surplus and the joint publisher--advertiser profit, leading to a net reduction in social welfare. They persist in current auction-based PPA mechanisms, such as the ones used by Google, Yahoo!, and Microsoft. In the latter settings they also reduce publisher revenues relative to pay-per-exposure methods. I show that these phenomena constitute a form of double marginalization and discuss a number of enhancements to today's PPA mechanisms that restore equilibrium pricing of advertised goods to efficient levels, improving both consumer surplus as well as the publisher's expected profits. This paper was accepted by Lorin Hitt, information systems.