Marketing Agencies and Collusive Bidding in Online Ad Auctions

Francesco Decarolis, Maris Goldmanis, Antonio Penta

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Abstract

The transition of the advertising market from traditional media to the internet has induced a proliferation of marketing agencies specialized in bidding in the auctions that are used to sell ad space on the web. We analyze how collusive bidding can emerge from bid delegation to a common marketing agency and how this can undermine the revenues and allocative efficiency of both the generalized second-price auction (GSP, used by Google, Microsoft Bing, and Yahoo!) and the Vickrey–Clarke–Groves (VCG) mechanism (used by Facebook). We find that despite its well-known susceptibility to collusion, the VCG mechanism outperforms the GSP auction in terms of both revenues and efficiency.
Original languageEnglish
Pages (from-to)4359-4919
JournalManagement Science
Volume66
Issue number10
Early online date3 Apr 2020
DOIs
Publication statusPublished - Oct 2020

Keywords

  • collusion, digital marketing, agencies, Facebook, Google, GSP, internet auctions, online advertising, VCG

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