Multi-keyword multi-click advertisement option contracts for sponsored search
Bowei Chen, Jun Wang, Ingemar J. Cox, Mohan S. Kankanhalli

TL;DR
This paper introduces a multi-keyword, multi-click ad option contract for sponsored search that reduces advertiser uncertainty, enhances loyalty, and stabilizes search engine revenue by combining financial option concepts with search advertising.
Contribution
It proposes a novel ad option structure for sponsored search that integrates multi-keyword and multi-click features, improving revenue stability and advertiser loyalty.
Findings
The proposed ad option reduces advertiser uncertainty.
It can increase the search engine's expected revenue.
Option pricing methods are validated through experiments.
Abstract
In sponsored search, advertisement (abbreviated ad) slots are usually sold by a search engine to an advertiser through an auction mechanism in which advertisers bid on keywords. In theory, auction mechanisms have many desirable economic properties. However, keyword auctions have a number of limitations including: the uncertainty in payment prices for advertisers; the volatility in the search engine's revenue; and the weak loyalty between advertiser and search engine. In this paper we propose a special ad option that alleviates these problems. In our proposal, an advertiser can purchase an option from a search engine in advance by paying an upfront fee, known as the option price. He then has the right, but no obligation, to purchase among the pre-specified set of keywords at the fixed cost-per-clicks (CPCs) for a specified number of clicks in a specified period of time. The proposed…
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Taxonomy
TopicsConsumer Market Behavior and Pricing · Auction Theory and Applications · Digital Platforms and Economics
