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Incentive-Compatible Advertising on Non-Retail Platforms

Spiegler, R; Eliaz, K; (2020) Incentive-Compatible Advertising on Non-Retail Platforms. RAND Journal of Economics , 51 (2) pp. 323-345. 10.1111/1756-2171.12316. Green open access

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Abstract

Non-retail platforms (e.g., online radio stations, social media) enable users to engage in various non-commercial activities, while at the same time generating user information that helps advertisers improve their targeting. We study novel incentive issues that arise when the platform tries to maximize its advertising revenues. In our model, the platform's policy consists of a personalized, stationary ad-display rule and an advertising fee (which the platform charges firms as a function of the consumer type they request to target). We provide conditions for the existence of an incentive-compatible policy that maximizes and fully extracts firms'surplus. This objective is easier to attain when the platform obtains more precise information about users' preferences. We apply our result to various examples of non-retail platforms, including content platforms and social networks. Our analysis of the latter turns out to be related to the "community detection" problem in Network Science.

Type: Article
Title: Incentive-Compatible Advertising on Non-Retail Platforms
Open access status: An open access version is available from UCL Discovery
DOI: 10.1111/1756-2171.12316
Publisher version: https://doi.org/10.1111/1756-2171.12316
Language: English
Additional information: This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
UCL classification: UCL
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/10081265
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