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Essays in Online Advertising University of Pennsylvania ScholarlyCommons Publicly Accessible Penn Dissertations 2012 Essays in Online Advertising Vibhanshu Abhishek University of Pennsylvania, [email protected] Follow this and additional works at: https://repository.upenn.edu/edissertations Part of the Other Economics Commons Recommended Citation Abhishek, Vibhanshu, "Essays in Online Advertising" (2012). Publicly Accessible Penn Dissertations. 603. https://repository.upenn.edu/edissertations/603 This paper is posted at ScholarlyCommons. https://repository.upenn.edu/edissertations/603 For more information, please contact [email protected]. Essays in Online Advertising Abstract The last several years have seen a dramatic increase in the amount of time and money consumers spend online. As a consequence, the Internet has become an important channel that firms can use ot reach out and connect to consumers which has lead to the emergence of online advertising.Given the scale and novelty of online advertising, there is a growing need to understand how consumers respond to online ads and how firms should advertise using this medium. In my dissertation, I study different aspects of sponsored search and display ads which constitute the bulk of online advertising. In the first essay, I focus on the issues related to the use of aggregate data in sponsored search. I demonstrate that models commonly used in sponsored search research suffer from aggregation bias and present the implications of this aggregation bias. In the second essay, I focus on the advertiser's problem of bidding optimally in sponsored search auctions. In the third essay, I study the interactions between various forms of online advertising like banner ads, display ads and sponsored search ads and address the problem of attribution. Degree Type Dissertation Degree Name Doctor of Philosophy (PhD) Graduate Group Operations & Information Management First Advisor Kartik Hosanagar Second Advisor Peter S. Fader Keywords Attribution, Auctions, Consumer behavior, Game theory, Online advertising, Sponsored search Subject Categories Economics | Other Economics This dissertation is available at ScholarlyCommons: https://repository.upenn.edu/edissertations/603 ESSAYS ON ONLINE ADVERTISING Vibhanshu Abhishek A DISSERTATION in Operations and Information Management For the Graduate Group in Managerial Science and Applied Economics Presented to the Faculties of the University of Pennsylvania in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy 2012 Supervisor of Dissertation Co-Supervisor of Dissertation Kartik Hosanagar, Peter S. Fader, Associate Professor of OPIM Professor of Marketing Graduate Group Chairperson Eric Bradlow, Professor of Marketing, Statistics, and Education Dissertation Committee Kartik Hosanagar, Associate Professor of Operations and Information Management Peter S. Fader, Frances and Pei-Yuan Chia Professor, Professor of Marketing Lorin M. Hitt, Class of 1942 Professor of Operations and Information Management Z. John Zhang, Murrel J. Ades Professor, Professor of Marketing ESSAYS ON ONLINE ADVERTISING © COPYRIGHT 2012 Vibhanshu Abhishek To my grandfather Dr. Raman and my mother Anshu, who have been a tremendous influence in my life. iii ACKNOWLEDGEMENT The last five years have been the most challenging and exhilarating time of my life. I feel privileged to have wonderful advisors and caring friends who have all stood by me during this time and made this dissertation a reality. First of all, I would like to thank Profs. Kartik Hosanagar, Pete Fader and John Zhang for being excellent mentors during the PhD programm. I feel extremely fortunate to be blessed with advisors who are extremely considerate, supportive and above all, accessible when I needed their help. I could not have hoped for better role models for my career. I still continue to learn from them everyday and sincerely wish that their support and encouragement will extend beyond Wharton. I would like to thank Lorin Hitt for being a part of my committee and having an early influence on my research agenda. I would also like to thank Kinshuk Jerath, Noah Gans, G´erardCachon, Oded Netzer, Eric Clemons, Vadim Cherepanov, Eric Bradlow, Raghuram Iyengar and Elea Feit for many an insightful discussion. I would like to thank the Mack Center for Technological Innovation, the Baker Retailing Center, the Wharton Customer Analytics Initiative and the Marketing Science Institute for generous financial and data support that was instrumental in the completion of this dissertation. Many thanks go to Mallory Hiatt, Kim Wartford, Andrea Nurse, Rochelle Hambeau-Miller and Karen Ressler for all the administrative help and Stan Liu and Jamie Walter for excellent IT support. The last five years would not have been possible without the help and support my friends at Wharton. Many special thanks go out to Dan Fleder, Pnina Feldman, Jaelynn Oh, Fazil Pa¸c,Amit Bhattacharya, Eric Schwartz and in particular, the OPIM Purification Band { Jose Guajardo, Jun Li, Toni Moreno, Alessandro Arlotto, Andre´sCatalan-Cardenas, Necati Tereya˘go˘gluand Fangyun Tan. I hope our friendship continues to grow beyond the confines of Huntsman Hall. iv I would also like to say a special thanks to my family for their unflinching support, frequent words of encouragement and understanding my physical absence during these years. Last but not the least, I would like to thank my wife Ankita for bearing with my erratic schedule and diligently proofreading all my papers, but most of all, for being by my side through this tumultuous process. This dissertation is as much a fruit of her dedication as it is of my labor and words can do little to express the gratitude I feel towards her. v ABSTRACT ESSAYS ON ONLINE ADVERTISING Vibhanshu Abhishek Kartik Hosanagar Peter S. Fader In this dissertation, we study different dimensions of online advertising by focusing on re- search questions which are motivated by marketing and managerial considerations. The first essay highlights the inadequacies of data standards that are commonly used in sponsored search. We show that these datasets result in aggregation bias and propose alternate data standards that do not suffer from this bias. An equilibrium analysis is performed to analyze the effect of this bias on the search engine and advertisers and it is shown that the search engine tend to lose the most from this bias. The second essay focuses on an advertiser's problem of bidding optimally in sponsored search. Uncertainty in the decision-making envi- ronment, budget constraints and the presence of a large portfolio of keywords makes the bid optimization problem non-trivial. We formulate this problem mathematically and propose a \myopic" policy for one-period optimization. This policy is extended by incorporating interactions between keywords, in the form of positive spillovers from generic keywords into branded keywords. This multi-period \forward-looking" policy uses a Nerlove-Arrow model to capture the long-term interactions between these keywords. The spillovers are estimated using a dynamic linear model and used to jointly optimize the bids of the keywords using an approximate dynamic programming approach. In the third essay we discuss the prob- lem of attribution in the context of online ads. We formulate a dynamic Hidden Markov Model to capture a consumer's behavior during the purchase process and how this process is affected by ads. This model is subsequently used to evaluate the role that each ad plays in a consumer's eventual conversion in order to solve the attribution problem. vi TABLE OF CONTENTS ACKNOWLEDGEMENT . iv ABSTRACT . vi LIST OF TABLES . viii LIST OF ILLUSTRATIONS . ix CHAPTER 1 : Introduction . 1 CHAPTER 2 : Aggregation Bias in Sponsored Search Data: The Curse and The Cure 6 2.1 Introduction . 6 2.2 Related work . 8 2.3 Aggregation Bias . 11 2.4 Empirical Analysis . 21 2.5 Managerial Implications . 28 2.6 Suggested Cures . 33 2.7 Conclusions . 37 CHAPTER 3 : Optimal Bidding in Multi-Item Multi-Slot Sponsored Search Auctions 51 3.1 Introduction . 51 3.2 Literature review . 54 3.3 Analytical Model . 57 3.4 Data Description . 65 3.5 Empirical Analysis . 69 3.6 Incorporating Interdependence between Keywords . 79 3.7 Discussion . 87 3.8 Conclusions . 90 vii CHAPTER 4 : The Long Road to Online Conversion: A Model of Multi-Touch At- tribution . 99 4.1 Introduction . 99 4.2 Prior Literature . 102 4.3 Data Description . 104 4.4 Model of Multi-Touch Attribution . 106 4.5 Empirical Analysis . 115 4.6 Discussion . 124 4.7 Conclusion . 127 BIBLIOGRAPHY . 129 viii LIST OF TABLES TABLE 1 : Sample dataset for a particular keyword . 7 TABLE 2 : Complete dataset for a particular keyword . 11 TABLE 3 : Summary Statistics . 21 TABLE 4 : Estimates of Parameters . 26 TABLE 5 : Comparative performance of various data summarization approaches. 34 TABLE 6 : Predictors of Bias . 50 TABLE 7 : Summary of notation . 60 TABLE 8 : Summary Statistics . 66 TABLE 9 : Product Categories . 67 TABLE 10 : Summary for the three groups of keywords. 68 TABLE 11 : Summary Statistics for the Random Bidding Period . 69 TABLE 12 : Parameter estimates for a sample subset of keywords. 73 TABLE 13 : Parameter estimates for a sample subset of keywords. 75 TABLE 14 : Changes in keyword performance . 78 TABLE 15 : Estimated Parameters . 83 TABLE 16 : Bids under the forward-looking policy . 86 TABLE 17 : MAE between the predicted and observed moments . 97 TABLE 18 : Summary Statistics . 105 TABLE 19 : Predictive validity . 118 TABLE 20 : Estimates of the transition parameters (β) . 119 TABLE 21 : Estimate of factors affecting the page views (λ) . 121 TABLE 22 : Estimates of conversion parameters . 122 TABLE 23 : Conversion probability as a result of various factors. 123 TABLE 24 : A comparison of attribution methodologies . 123 ix LIST OF ILLUSTRATIONS FIGURE 1 : Logistic regression on complete and aggregate data. 15 FIGURE 2 : Mean Intra-day Variation in Position. 22 FIGURE 3 : HB Estimation on complete and aggregate data. The red dotted lines represent the mean of the respective coefficients' distribution. 27 FIGURE 4 : Error distribution estimated by computing the difference between the estimates from aggregate data and complete data.
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