Paper #1782

Title:

Bid coordination in sponsored search auctions: Detection methodology and empirical analysis

Authors:

Francesco Decarolis, Maris Goldmanis, Antonio Penta and Ksenia Shakhgildyan

Date:

May 2021

Abstract:

Bid delegation to specialized intermediaries is common in the auction systems used to sell internet advertising. When the same intermediary concentrates the demand for ad space from competing advertisers, its incentive to coordinate client bids might alter the functioning of the auctions. Using proprietary data from auctions held on a major search engine, this study develops a methodology to detect bid coordination. It also presents a strategy to estimate a bound on the search engine revenue losses imposed by coordination relative to a counterfactual benchmark of competitive bidding. In the data, coordination is detected in 55 percent of the cases of delegated bidding observed and the associated upper bound revenue loss for the search engine ranges between 5.3 and 10.4 percent.

Keywords:

online advertising, sponsored search auctions, delegation, common agency

JEL codes:

C72, D44, L81

Area of Research:

Macroeconomics and International Economics

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