From Mad Men to Maths Men: Concentration and Buyer Power in Online Advertising
Francesco Decarolis, Gabriele Rovigatti
American Economic Review · 2021 · Volume 111 · Issue 10
Abstract
This paper analyzes the impact of intermediary concentration on the allocation of revenue in online platforms. We study sponsored search documenting how advertisers increasingly bid through a handful of specialized intermediaries. This enhances automated bidding and data pooling, but lessens competition whenever the intermediary represents competing advertisers. Using data on nearly 40 million Google keyword auctions, we first apply machine learning algorithms to cluster keywords into thematic groups serving as relevant markets. Using an instrumental variable strategy, we estimate a decline in the platform's revenue of approximately 11 percent due to the average rise in concentration associated with intermediary merger and acquisition activity.
Keywords
Neural Networks and Related Topics, Auctions, Mergers, Acquisitions, Restructuring, Voting, Proxy Contests, Corporate Governance, Oligopoly and Other Imperfect Markets, Retail and Wholesale Trade, e-Commerce, Advertising
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