Free DP Download 01 August 2019 - ONLINE ADVERTISING: Greater buyer power hits search engines’ revenues

Thursday, August 1, 2019

 

From Mad Men to Maths Men: Concentration and buyer power in online advertising
Francesco Decarolis and Gabriele Rovigatti  
CEPR DP No. 13897 28 July 2019

Advertising in the internet era increasingly requires both detailed data to tailor the ad to the right consumers (‘targeting’) and fast algorithms to bid on the online auction platforms where ad space is sold. These needs have given rise to a major shift from advertisers' individual bidding to delegated bidding by highly specialised intermediaries. In turn, by concentrating the demand of many advertisers within a few large intermediaries, this development has triggered the emergence of buyer power and counterbalanced the highly concentrated supply of online advertising.

A new CEPR study analyses the impact of intermediaries and increased buyer power on the revenues of online platforms such as Google. The findings indicate that they have a significant negative impact on search engine revenues. Despite the potential benefits for the search engine from the increased efficiency that intermediaries bring to the market, especially through enhanced speed and better data, the negative revenue result is indicative of the intermediaries' ability to reduce average prices. This is a novel insight into what is currently one of the largest and fastest growing advertising markets.

Figure 1: Number of Advertisers per Industry: Redbooks data


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