Khai Chiong (UT Dallas)
Kalai Family Workshop in Applied Microeconomics
Feb 13 2018
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An Empirical Model of Mobile Advertising Platforms
We study a new online advertising platform, created specifically for mobile app-to-app advertising. Both advertisers and publishers are mobile applications (apps). Advertisers seek to acquire new users for their mobile apps, while publishers seek to monetize their apps. Our data come from an intermediary who operates this two-sided platform, and who uses a centralized market-clearing mechanism to meet the demand with the supply of users’ in-app impressions. Notably in this mechanism, advertisers bid for impressions, but only pay when impressions are won and when ads lead to user acquisitions (pay-per-install). We develop a model for the advertiser’s optimal bidding problem, and use observed bids to recover the advertiser’s valuation for a new user. Subsequently, we match how much a user then spends on the advertiser’s app after acquisition, and we find that an acquired user’s subsequent spending contributed to only 10% of the advertiser’s valuation for that user. We argue that this relatively large unobserved valuation partly stems from advertisers’ resale motives: after acquiring users and selling in-app purchases to them, an advertiser then has the option to resell these users by becoming a publisher, selling these users’ impressions to other advertisers. Thereby, the advertiser participates in both sides of the market as an advertiser and a publisher.