Monetization in Product and Display Advertising Marketplaces by Hana Choi

Business Administration Duke University

Date: Approved:

Carl F. Mela, Supervisor

Santiago R. Balseiro

Bryan Bollinger

Giuseppe Lopomo

Hema Yoganarasimhan

Dissertation submitted in partial fulfillment of the requirements for the degree of Doctor of Philosophy in the Department of Business Administration in the Graduate School of Duke University 2019 ABSTRACT Monetization in Product and Display Advertising Marketplaces by Hana Choi

Business Administration Duke University Date: Approved:

Carl F. Mela, Supervisor

Santiago R. Balseiro

Bryan Bollinger

Giuseppe Lopomo

Hema Yoganarasimhan

An abstract of a dissertation submitted in partial fulfillment of the requirements for the degree of Doctor of Philosophy in the Department of Business Administration in the Graduate School of Duke University 2019 Copyright c 2019 by Hana Choi All rights reserved Abstract

This dissertation considers monetization strategies in the context of online product and display ad marketplaces.

The first chapter considers online marketplace platforms that trade-off their fees from advertising with commissions from product sales. While featuring advertised products can make search less efficient (lowering transaction commissions), it incen- tivizes sellers to compete for better placements via advertising (increasing advertising fees). We consider this trade-off by modeling both sides of the platform. On the de- mand side, we develop a joint model of browsing (impressions), clicking, and purchase. On the supply side, we consider sellers’ valuation and advertising competition under various fee structures (CPM, CPC, CPA) and ranking algorithms.

Using buyer, seller, and platform data from an online marketplace where advertis- ing dollars affect the order of seller items listed, we explore various product ranking and ad pricing mechanisms. We find that sorting items below the fifth position by expected sales revenue while conducting a CPC in the top 5 positions yields the greatest improvement in profits (181%) because this approach balances the high- est valuations from advertising in the top positions with the transaction revenues in the lower positions.

The second chapter considers how a publisher should set reserve prices for real- time (RTB) when selling display advertising impressions through ad exchanges. Through a series of field experiments, we show that a reserve price set based on an imputed demand curve (in the absence of constraints) can increase publisher’s revenues by 32%, thereby affirming the importance of reserve price in maximizing publisher’s revenues. Further, we find that advertisers increase their bids in response to an experimental increase in reserve price and show this behavior

iv is consistent with the use of a minimum impression constraint to ensure advertising reach.

Based on this insight, we construct an advertiser bidding model and use it to infer the overall demand curve for advertising as a function of reserve prices. Using this constraint-based demand model, we solve the publisher pricing problem. Incor- porating the minimum impression constraint into the reserve price setting process yields a 50% increase over a solution that does not incorporate the constraint and an additional increase in profits of 9 percentage points.

v Acknowledgements

This dissertation would not be complete without acknowledging those who have sup- ported and encouraged me throughout my doctoral studies. First and foremost, I want to thank my advisor. My time at Duke has been invaluable because I have had the chance to learn from and work with Carl. His enthusiasm for studying interest- ing marketing topics and his perseverance for achieving rigorousness in research have shown me how