The Market for Keywords Kfir Eliaz (Tel Aviv & Michigan) Ran - - PowerPoint PPT Presentation

The Market for Keywords

Kfir Eliaz

(Tel‐Aviv & Michigan)

Ran Spiegler

(Tel‐Aviv & UCL)

i‐Core day, HU April 2014

Motivation

Economic literature on sponsored links:

• Mechanisms for allocating advertisers to keywords.
• Single keyword – Users have perfect ability to describe

what they want. We examine a multi‐keyword environment, where users have limited ability to describe wants (misspellings, synonyms, categories, vague queries).

Our question: Can competitive market allocation of advertisers to keywords attain an efficient outcome, under suitably designed broad match? “Competitive equilibrium” methodology (as opposed to mechanisn design) In our model: A (benevolent) search engine addresses this limitation by “broad match design”: when a user submits the query “w”, he also gets advertisers that paid the market price of a different word v.

Model: Primitives

• is a set of (at least 2) products.
• Each product is produced by a measure 1 of firms.
• is a set of words,

.

• A consumer type is a pair

.

• is the (only) product the consumer likes.
• is the (only) word he can express (his “vocabulary”).

Distribution of consumer types Model: Primitives

• The popularity of
• ,
• Conditional query distribution

• The value of a transaction for a firm is 1.
• The value of a transaction for a consumer is 1

for the product he wants; 0 otherwise.

• Consumer of type

who decides to enter market, submits query “ ”.

─ Gets a “search pool” consisting of measures of firms of different types. ─ Repeatedly draws (“clicks”) at random firms from pool with a constant search cost per click 0.

Model: Primitives

• Narrow match: consumers who query “ ” only get firms

that are willing to pay the market price‐per‐click p( ).

• Suppose both types (n,

and (m, enter the market.

• Since

, m has a higher conversion rate, hence a higher willingness to pay (per click) for .

• Competitive equilibrium will allocate

to m firms; the niche product n is crowded out.

Socially optimal equilibrium under Narrow match consumers not served

Broad match: Weighted directed graph over keywords

: The probability that a firm that paid for will enter the search pool of a consumer who submits .

, | ,

Measure of firms Linked to ∅ via Measure of all firms Linked to ∅ via

∗

∗ ∗ ∗ ∗ ∗

query gives firms that paid for An firm might want to buy word . This is the essence of the incentive problem of a competitive market for keywords with broad matching.

Number of transactions For firm from word Number of “clicks” from word Number of transactions For firm from word Number of “clicks” from word

An firm should “outbid” an firm for word

Number of transactions For firm from word Number of transactions For firm from word

• ∈,,∅

The Bhattacharyya coefficient

• Direction cosine of angle between unit vectors
• ∈ and
• ∈
• Gets values in

;

• nly if
• Increasing with Blackwell garbling

General definition of market equilibrium

Consumer types’ search decision Allocation of words to firm types The pair is a market equilibrium if:

• is optimal given the search pool of

induced by .

• is the (unique) firm type with the highest

given . The equilibrium price is .

General Result. Let . There exists ∗ that sustains an efficient market equilibrium iff

• that belong to the search pool of some

in the efficient outcome.