Double Marginalization and Misplacement in Online Advertising*

Author:

White Alexander1,Jain Kamal2,Ichihashi Shota3,Kim Byung‐Cheol4

Affiliation:

1. School of Economics and Management and National Institute for Fiscal Studies Tsinghua University Beijing China

2. Walmart Global Tech Seattle Washington U.S.A

3. Department of Economics Queen's University Kingston Ontario Canada

4. Department of Economics, Finance, and Legal Studies, Culverhouse College of Business University of Alabama Tuscaloosa Alabama U.S.A

Abstract

Internet users often surf multiple websites as a bundle to fulfill their needs and ‘pay’ for the content by viewing ads. We study how such complementary websites choose advertising policies. Two forces distort the equilibrium away from the industry optimum and the efficient outcome. First, websites place too many ads (double marginalization). Second, given the total advertising volume at equilibrium, websites misallocate ads among themselves (misplacement). Competition in one market segment may eliminate double marginalization but exacerbate misplacement. Introducing micropayments removes misplacement, but the welfare consequences are ambiguous. Policymakers must thus be cautious when applying standard remedies to zero‐price markets.

Publisher

Wiley

Subject

Economics and Econometrics,General Business, Management and Accounting,Accounting

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