Position auctions with budget constraints: Implications for advertisers and publishers

Shijie Lu, Yi Zhu, Anthony Dukes

Research output: Contribution to journalArticle

9 Scopus citations

Abstract

This paper examines position auctions with budget-constrained advertisers, a dominant bidding environment used by publishers to allocate positions in online advertising. Budget constraints play a crucial role in equilibrium bidding by inducing advertisers to strategically deplete a higher-ranked advertiser’s budget to gain in rank. This strategic consideration has consequences for the advertisers’ profits and the publisher’s revenue. An advertiser’s profit can strictly decrease with her budget when competition for an advertising space (e.g., a keyword) is intense. The publisher’s revenue can also strictly decrease when an increase in the higher-ranked advertiser’s budget induces the lower-ranked rival to reduce her bid, due to her inability to deplete the higherranked advertiser’s budget. Several managerial implications for advertisers and publishers are discussed.

Original languageEnglish (US)
Pages (from-to)897-905
Number of pages9
JournalMarketing Science
Volume34
Issue number6
DOIs
StatePublished - Nov 2015

Keywords

  • Budget constraints
  • Game theory
  • Generalized second-price auctions
  • Internet marketing
  • Online advertising
  • Position auctions

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