Adverse inclusion of asymmetric advertisers in position auctions

Zibin Xu; Yi Zhu; Shantanu Dutta

doi:10.1016/j.ijresmar.2023.01.001

Adverse inclusion of asymmetric advertisers in position auctions

Zibin Xu, Yi Zhu, Shantanu Dutta

Marketing (CSOM)

Research output: Contribution to journal › Article › peer-review

1 Scopus citations

Abstract

Product listing platforms commonly use generalized second-price auctions to select competing advertisers for limited ad positions. However, when advertisers are asymmetric, position auctions may confound the post-auction competition structure and thus endogenize the bidders’ values of the ad positions. We build an analytical model to examine the impact of position auctions on an asymmetric market structure, which consists of a mass marketer and two specialized advertisers of heterogeneous quality efficiencies. The advertisers bid for two ad slots and then compete for the market in price and quality. We find that the asymmetric market structure may increase the uncertainty of the auction outcomes, which then may induce the advertisers to underbid using a conservative strategy profile in the locally-envy free equilibrium. Consequently, the auction outcome may adversely include the less-efficient specialized advertiser. This result is stronger than the position paradox in the classic auction literature, as the advertiser with a competitive advantage may be driven out and obtain zero profit.

Original language	English (US)
Pages (from-to)	724-740
Number of pages	17
Journal	International Journal of Research in Marketing
Volume	40
Issue number	3
DOIs	https://doi.org/10.1016/j.ijresmar.2023.01.001
State	Published - Sep 2023

Bibliographical note

Funding Information:
The authors thank the editor, the associate editor, two annoymous referees, Anthony Dukes, Matt Selove, Dina Mayzlin, Kinshuk Jerath, J.Miguel Villas-boas, Sanjay Jain, Tianshu Sun, Yuxin Chen, Baojun Jiang, Krista Li for their insightful suggestions on previous versions of this paper. The authors are also grateful for the seminar participants at USC, University of Minnesota, University of Houston, 2014 and 2017 INFORMS Marketing Science Conference for their helpful comments. The research is sponsored by National Natural Science Foundation of China [Grant 72172089 and 71832010].

Funding Information:
The second author gratefully acknowledges financial support from the Dean’s Small Research Grant, and IRM (Institute for Research in Marketing) Research Grant at the Carlson School of Management, UMN.

Publisher Copyright:
© 2023 Elsevier B.V.

Keywords

Asymmetric Bidders
Full Inclusion
Generalized Second Price Auctions
Locally-Envy Free Equilibrium
Position Auctions
Specialized Advertisers

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10.1016/j.ijresmar.2023.01.001

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title = "Adverse inclusion of asymmetric advertisers in position auctions",

abstract = "Product listing platforms commonly use generalized second-price auctions to select competing advertisers for limited ad positions. However, when advertisers are asymmetric, position auctions may confound the post-auction competition structure and thus endogenize the bidders{\textquoteright} values of the ad positions. We build an analytical model to examine the impact of position auctions on an asymmetric market structure, which consists of a mass marketer and two specialized advertisers of heterogeneous quality efficiencies. The advertisers bid for two ad slots and then compete for the market in price and quality. We find that the asymmetric market structure may increase the uncertainty of the auction outcomes, which then may induce the advertisers to underbid using a conservative strategy profile in the locally-envy free equilibrium. Consequently, the auction outcome may adversely include the less-efficient specialized advertiser. This result is stronger than the position paradox in the classic auction literature, as the advertiser with a competitive advantage may be driven out and obtain zero profit.",

keywords = "Asymmetric Bidders, Full Inclusion, Generalized Second Price Auctions, Locally-Envy Free Equilibrium, Position Auctions, Specialized Advertisers",

author = "Zibin Xu and Yi Zhu and Shantanu Dutta",

note = "Funding Information: The authors thank the editor, the associate editor, two annoymous referees, Anthony Dukes, Matt Selove, Dina Mayzlin, Kinshuk Jerath, J.Miguel Villas-boas, Sanjay Jain, Tianshu Sun, Yuxin Chen, Baojun Jiang, Krista Li for their insightful suggestions on previous versions of this paper. The authors are also grateful for the seminar participants at USC, University of Minnesota, University of Houston, 2014 and 2017 INFORMS Marketing Science Conference for their helpful comments. The research is sponsored by National Natural Science Foundation of China [Grant 72172089 and 71832010]. Funding Information: The second author gratefully acknowledges financial support from the Dean{\textquoteright}s Small Research Grant, and IRM (Institute for Research in Marketing) Research Grant at the Carlson School of Management, UMN. Publisher Copyright: {\textcopyright} 2023 Elsevier B.V.",

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AU - Zhu, Yi

AU - Dutta, Shantanu

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PY - 2023/9

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N2 - Product listing platforms commonly use generalized second-price auctions to select competing advertisers for limited ad positions. However, when advertisers are asymmetric, position auctions may confound the post-auction competition structure and thus endogenize the bidders’ values of the ad positions. We build an analytical model to examine the impact of position auctions on an asymmetric market structure, which consists of a mass marketer and two specialized advertisers of heterogeneous quality efficiencies. The advertisers bid for two ad slots and then compete for the market in price and quality. We find that the asymmetric market structure may increase the uncertainty of the auction outcomes, which then may induce the advertisers to underbid using a conservative strategy profile in the locally-envy free equilibrium. Consequently, the auction outcome may adversely include the less-efficient specialized advertiser. This result is stronger than the position paradox in the classic auction literature, as the advertiser with a competitive advantage may be driven out and obtain zero profit.

AB - Product listing platforms commonly use generalized second-price auctions to select competing advertisers for limited ad positions. However, when advertisers are asymmetric, position auctions may confound the post-auction competition structure and thus endogenize the bidders’ values of the ad positions. We build an analytical model to examine the impact of position auctions on an asymmetric market structure, which consists of a mass marketer and two specialized advertisers of heterogeneous quality efficiencies. The advertisers bid for two ad slots and then compete for the market in price and quality. We find that the asymmetric market structure may increase the uncertainty of the auction outcomes, which then may induce the advertisers to underbid using a conservative strategy profile in the locally-envy free equilibrium. Consequently, the auction outcome may adversely include the less-efficient specialized advertiser. This result is stronger than the position paradox in the classic auction literature, as the advertiser with a competitive advantage may be driven out and obtain zero profit.

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Adverse inclusion of asymmetric advertisers in position auctions

Abstract

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