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Marketing Agencies and Collusive Bidding in Online Ad Auctions

Francesco Decarolis, Maris Goldmanis, Antonio Penta

NBER Working Paper No. 23962
Issued in October 2017, Revised in July 2019
NBER Program(s):The Industrial Organization Program

The transition of the advertising market from traditional media to the internet has induced a proliferation of marketing agencies specialized in bidding in the auctions that are used to sell ad space on the web. We analyze how collusive bidding can emerge from bid delegation to a common marketing agency and how this can undermine the revenues and allocative efficiency of both the Generalized Second Price auction (GSP, used by Google and Microsoft-Bing and Yahoo!) and the VCG mechanism (used by Facebook). We find that, despite its well-known susceptibility to collusion, the VCG mechanism outperforms the GSP auction both in terms of revenues and efficiency.

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Document Object Identifier (DOI): 10.3386/w23962

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