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

Author(s): Francesco Decarolis, Gabriele Rovigatti
Publication Date: July 2019
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 intermediaries' concentration on the allocation of revenues in online platforms. We study sponsored search - the sale of ad space on search engines through online auctions - 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's keyword-auctions, we first apply machine learning algorithms to cluster keywords into thematic groups serving as relevant markets. Then, through an instrumental variable strategy, we quantify a negative and sizeable impact of intermediaries' concentration on platform's revenues.