2023/04/17 by Dirk Bergemann, Bergemann, Dirk, Alessandro Bonatti +3 · 1 citation
Business, Management and Accounting · Decision Sciences · #Auction Theory and Applications #Computer Science and Game Theory (cs.GT) #Consumer Market Behavior and Pricing #Digital Platforms and Economics #FOS: Computer and information sciences #FOS: Economics and business #Theoretical Economics (econ.TH)
paper · pdf · doi:10.48550/arxiv.2304.08432
openalex publication_date 2023/04/17 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
We present a model of digital advertising with three key features: (i) advertisers can reach consumers on and off a platform, (ii) additional data enhances the value of advertiser-consumer matches, and (iii) bidding follows auction-like mechanisms. We contrast data-augmented auctions, which leverage the platform's data advantage to improve match quality, and managed campaign mechanisms that automate match formation and price-setting. The platform-optimal mechanism is a managed campaign that conditions on-platform prices for sponsored products on the off-platform prices set by all advertisers. This mechanism yields the efficient on-platform allocation but inefficient off-platform allocations due to high product prices; it attains the vertical integration profit for the platform and advertisers; and it increases off-platform product prices and decreases consumer surplus, relative to data-augmented auctions.