Seminar

Competition and Specificity in Online Auctions: Evidence from Geotargeted Advertising

Cosmina Dorobantu (European Commission)

November 8, 2017, 12:30–13:30

Room MS003

Digital Workshop

Abstract

We study a natural experiment in the release of a new ad targeting feature onto an online advertising platform. The experiment affects the precision with which advertisers can target the platform's users in certain geographic ad markets. We find evidence that the additional ad targeting precision negatively affects auction participation in the treated areas, an effect that has not been anticipated by the incumbent theoretical literature. We also find evidence that despite negatively affecting auction participation, the release of the new ad targeting feature leads to higher revenue growth for the online platform in the treated areas. By showing that for the online platform in our study, enhanced ad targeting was profitable despite concerns about market thinness, partitioned demand, and bargaining power, our results uncover a new angle on the trade-off between competition and specificity in online auctions. Furthermore, the results highlight the importance of considering entry and exit decisions in theoretical models of specificity choices by auctioneers and market designers.