Market effects of sponsored search auctions

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• dc.contributor.author Motta, Massimo
• dc.contributor.author Penta, Antonio
• dc.contributor.other Universitat Pompeu Fabra. Departament d'Economia i Empresa
• dc.date.accessioned 2024-11-14T10:09:32Z
• dc.date.available 2024-11-14T10:09:32Z
• dc.date.issued 2022-06-01
• dc.date.modified 2024-11-14T10:08:43Z
• dc.description.abstract We investigate the market effects of brand search advertising, within a model where two firms simultaneously choose the price of their (differentiated) product and the bids for the advertising auction which is triggered by own and rival's brand keywords search; and where there exist sophisticated/attentive consumers (who look for any available information on their screen) and naive/inattentive consumers (who only look at the top link of their screen), both aware of either brand's characteristics and price. Relative to a benchmark where only organic search exists, in any symmetric equilibrium each firm wins its own brand auction, and advertising has detrimental effects on welfare: (i) the sponsored link crowds out the rival's organic link, thus reducing competition and choice, and leading to price increases; (ii) the payment of the rival's bid (may) raise marginal cost, also contributing to raise market prices. Under extreme asymmetry (there is an incumbent and an unknown new entrant), we do find that the market effect of brand bidding might be beneficial, if the search engine does not list the entrant's link in organic search, and the share of the sophisticated consumers in the economy is large enough for an equilibrium in which the entrant wins the advertising auction on the search for the incumbent's brand to exist.
• dc.format.mimetype application/pdf*
• dc.identifier https://econ-papers.upf.edu/ca/paper.php?id=1844
• dc.identifier.citation
• dc.identifier.uri http://hdl.handle.net/10230/68547
• dc.language.iso eng
• dc.relation.ispartofseries Economics and Business Working Papers Series; 1844
• dc.rights L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons
• dc.rights.accessRights info:eu-repo/semantics/openAccess
• dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
• dc.subject.keyword digital advertising
• dc.subject.keyword auctions
• dc.subject.keyword oligopoly
• dc.subject.keyword search engines
• dc.subject.keyword brands
• dc.subject.keyword horizontal agreements
• dc.subject.keyword Microeconomics
• dc.title Market effects of sponsored search auctions
• dc.title.alternative
• dc.type info:eu-repo/semantics/workingPaper