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Paid Placement: Advertising and Search on the Internet

Authors: Chen, Yongmin - University of Colorado at Boulder
He, Chuan - University of Colorado at Boulder
Keywords: Paid placement, Advertising, Auction, E-commerce, Search
Issue Date: 2006
Series/Report no.: NET Institute Working Paper;06-02
Abstract: Paid placement, where advertisers bid payments to a search engine to have their products appear next to keyword search results, has emerged as a predominant form of advertising on the Internet. This paper studies a product-di¤erentiation model where consumers are initially uncertain about the desirability of and valuation for di¤erent sellers products, and can learn about a seller s product through a costly search. In equilibrium, a seller bids more for placement when his product is more relevant for a given keyword, and the paid placement of sellers by the search engine reveals information about the relevance of their products. This results in e¢ cient (sequential) search by consumers and increases total output.
Appears in Collections:NET Institute Working Papers Series

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