The Attention Economy of Search and Web Advertisement

Transcription

1 The Attention Economy of Search and Web Advertisement Alexander White Toulouse School of Economics, Télécom ParisTech (joint with Kamal Jain, Microsoft Research) June 12, 2010 IESE, Barcelona Conference on the Economics of Advertising and Marketing

2 People Surf the Web 1. Search Engine Results Page 2. Content Website

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5 Typical Complement Sellers Problem: Hardware Software P H Single Demand P S Double Marginalization: P H +P S > P * Cournot 1838, ch. IX

6 Typical Solutions: One Price Setter P = P * Single Demand With advertisement, however, there are two effects at play Different websites have different advertising technologies

7 The Model: Simple Example Search Engine Profits: Content Website Profits: a s [# of users] a w [# of users] User utility: u i = v i a 2 s a 2 w γ, if searches and visits website 0, otherwise v i ~ U[0,v ]

8 Compare Two Scenarios Case 1 One Search Engine One Content Website Search Engine Content Website Case 2 One Search Engine Perfectly Competitive Content Websites Search Engine Content Websites

9 Case 1: One SE, One CW Timing 1. SE and CW set advertising levels 2. Users decide whether to search and visit content site Choosing Advertising Levels SE and CW solve: max a s 1 a s a s 2 + v a w γ 2 max a w 1 a w a s 2 + v a w γ 2 (Same Users)

10 Case 2: One SE, Competitive CWs Here, only search engine sets positive advertising Choosing Advertising Levels SE solves: max a s 1 a s a s 2 + v 0 γ 2

11 Tradeoff: Double Marginalization versus Mis-marginalization Total Profits Competitive Content Websites One Content Website With one SE, one CW, total advertising level unprofitably high With competitive CWs, only SE s advertising technology is utilized γ

12 Tradeoff: Double Marginalization versus Mis-marginalization Total Welfare Competitive Content Websites One Content Website v large γ v small

13 In the Paper General, price theoretic treatment of the problem Start off with one site, examine different advertising technologies U i = v i δ(a,γ ), if visits site χ, if not Π = (a c)d( δ(a,γ ) + χ)

14 In the Paper General, price theoretic treatment of the problem Start off with one site, examine different advertising technologies!(a," )! a" '' large! a" '' small!(a," ) a a

15 In the Paper General, price theoretic treatment of the problem Start off with one site, examine different advertising technologies

16 In the Paper General, price theoretic treatment of the problem Start off with one site, examine different advertising technologies Analyze problem with arbitrary number of sites Two fundamental distortions Double marginalization Mis-marginalization

17 Two Fundamental Distortions Industry Optimum: a Π ( ( c = h δ a Π )) 1 δ a j, for all j Equilibrium: ( ) 1 a * ( c = h δ a * ) δ a δ a n

18 In the Paper General, price theoretic treatment of the problem Start off with one site, examine different advertising technologies Analyze problem with arbitrary number of sites Two fundamental distortions Double marginalization Mis-marginalization Salop model: 1 search engine, n content websites Study effects of differentiation, incentives for entry Surprising result: In equilibrium, users benefit from more differentiation/ less entry by content websites

19 Future Work Relate to ongoing work on general framework of platform competition (with Glen Weyl) Integrate constraints on transferability of utility between platforms and consumers Better understand relation to Cournot with asymmetric costs

20 Partial Complementarity Content Search a w Direct Visitors Searchers a s + a w Searcher benefit direct visitors, and direct visitors harm searchers

21 Unreliable Content Sites λv i a 2 2 s a w,1 1 2 (1 λ)λv i a 2 2 s a w,1 2 a w,2

22 Related Literature Search and the Greater Web: Evans (RNE 08), Survey The Economics of Online Advertising Katona & Sarvary (Marketing Science 08) Dellarocas & Rand Search Engine as a Platform Athey-Ellison, Gomes White Advertising on Platforms: Anderson & Coate (RES 05), Anderson & De Palma Choi (IEP 06) Crampes, Hartichbalet & Jullien (JIE 09) Competition Among Complement Producers: Casadesus-Masanell, Nalebuff & Yoffie Cheng & Nahm (RJE 07) Weyl-Fabinger

23 Conclusion 1. Multiple websites are often complements 2. They use very different methods to turn user attention into revenue Each of these leads to a separate coordination problem 1. Double Marginalization: too much nuisance 2. Mis-marginalization: inefficient nuisance For websites, there is a tradeoff between solving one and solving the other