DP13897 From Mad Men to Maths Men: Concentration and Buyer Power in Online Advertising

Author(s):	Francesco Decarolis, Gabriele Rovigatti
Publication Date:	July 2019
Date Revised:	May 2020
Keyword(s):	Buyer Power, Concentration, online advertising, platforms, Sponsored Search
JEL(s):	C72, D44, L81
Programme Areas:	Industrial Organization
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=13897

This paper analyzes the impact of intermediary concentration on the allocation of revenues 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 revenues of approximately 11 percent due to the average rise in concentration associated with intermediary M&A activity.