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How Google’s Own Ads Impact Pricing

In class, we have been discussing how ad platforms, like Facebook’s and Google’s, use auctions to determine the price of certain advertising slots. In the model we have been learning, bidders state their values for each of the slots, and the bidder with the highest value for a particular slot gets that slot and pays the second highest value. In theory, the dominant strategy is for each bidder to state exactly their value for the slots and everyone will get the greatest value from the auction. However, this model is simplified and does not take into account many different external factors that can influence the way bidders place bids.

In the article I chose, “Here’s how Google’s own ads impact bids & pricing in AdWords auctions,” the author discusses one of these external factors: Google’s use of its own ad platform. Google’s other products, such as Google Drive, Android, etc. use Google’s ad platform to advertise, and they bid alongside all of the other bidders using the platform. In addition to a company’s bid, Google also factors in the company’s ad’s “AdRank” to determine who to give a particular ad slot to. Google’s own ads get very high AdRank scores, often allowing Google to beat other companies for desirable ad slots. In response to this, companies must try to bid higher in order to beat out Google’s ads. This causes an artificial increase in the price of bids because it forces bidders to bid higher than they were originally willing to. Therefore, there is much more complexity to real-world advertisement auctions than what was touched upon in class.


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