CPC/CPA Hybrid Bidding in a Second Price Auction
20 Pages Posted: 18 Dec 2008
Date Written: December 17, 2008
Abstract
We develop a model of online advertising in which each advertiser chooses from multiple advertising measurement metrics - paying either for each click on its ads (CPC), or for each purchase that follows an ad-click (CPA). Our analysis extends classic auction results by allowing players to make bids using two different pricing schemes, while the driving information for bidders' endogenous selection - the conversion rate - is hidden from the seller. We show that the advertisers with the most productive sites prefer to pay CPC, while advertisers with lower quality sites prefer to pay CPA - a result that may be viewed as counterintuitive since low quality sites cannot proudly tout their conversion rates. This result holds even if an ad platform's assessment of site quality is correct in expectation. We also show that by offering both CPC and CPA, an ad platform can weakly increase its revenues compared to offering either alternative alone.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Position Auctions with Consumer Search
By Susan Athey and Glenn Ellison
-
Paid Placement: Advertising and Search on the Internet
By Yongmin Chen and Chuan He
-
An Empirical Analysis of Search Engine Advertising: Sponsored Search in Electronic Markets
By Anindya Ghose and Sha Yang
-
By Sha Yang and Anindya Ghose
-
From Generic to Branded: A Model of Spillover Dynamics in Paid Search Advertising
-
By Juan Feng, Hemant K. Bhargava, ...
-
Search Engine Advertising: Channel Substitution when Pricing Ads to Context
By Avi Goldfarb and Catherine E. Tucker
-
A Dynamic Model of Sponsored Search Advertising
By Song Yao and Carl F. Mela