Chen, B;
Wang, J;
Cox, I;
Kankanhalli, M;
(2013)
Multi-Keyword Multi-Click Option Contracts for Sponsored Search Advertising.
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Abstract
In sponsored search, advertising slots are usually sold by a search engine to an advertiser through an auction mechanism in which advertisers bid on keywords. In theory, an auction mechanism encourages the advertisers to truthfully bid for keywords. However, keyword auctions have a number of problems including: (i) volatility in revenue, (ii) uncertainty in the bidding and charged prices for advertisers’ keywords, and (iii) weak brand loyalty between the advertiser and the search engine. To address these issues, we study the possibility of creating a special option contract that alleviates these problems. In our proposal, an advertiser purchases an option in advance from a search engine by paying an upfront fee, known as the option price. The advertiser then has the right, but no obligation, to then purchase specific keywords for a fixed costper-click (CPC) for a specified number of clicks in a specified period of time. Hence, the advertiser has increased certainty in sponsored search while the search engine could raise the customers’ loyalty. The proposed option contract can be used in conjunction with traditional keyword auctions. As such, the option price and corresponding fixed CPC price must be set such that there is no arbitrage opportunity. In this paper, we discuss an option pricing model tailored to sponsored search that deals with spot CPCs of targeted keywords in a generalized second price (GSP) auction. We show that the pricing model for keywords is closely related to a special exotic option in finance that contains multiple underlying assets (multi-keywords) and is also multi-exercisable (multi-clicks). Experimental results on real advertising data verify our pricing model and demonstrate that advertising options can benefit both advertisers and search engines.
| Type: | Working / discussion paper |
|---|---|
| Title: | Multi-Keyword Multi-Click Option Contracts for Sponsored Search Advertising |
| Open access status: | An open access version is available from UCL Discovery |
| Publisher version: | http://web4.cs.ucl.ac.uk/staff/jun.wang/blog/2013/... |
| Language: | English |
| Additional information: | Permission to make digital or hard copies of part or all of this work for personal or classroom use is granted without fee provided that copies are not made or distributed for profit or commercial advantage and that copies show this notice on the first page or initial screen of a display along with the full citation. |
| URI: | https://discovery.ucl.ac.uk/id/eprint/1401365 |
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