Is Google’s Ad Market as Complex as the Stock Market?
For my second blog post, I selected an article titled “Should Google’s Ad Market Be Regulated Like the Stock Market?” By Gilad Edelman. Edelman begins by making a comparison between the stock market and the online advertising market. To explain the complexity of online advertising, the author claims that the digital marketplace makes the NASDAQ look like a “lemonade stand”. Students in CS 2850 can relate.
Edelman proceeds to explain why advertising is a market; when a user loads a web page, advertisers compete in “real-time bidding” (an automated bidding process) to show that user their ad. The scope of this expands to billions of internet users loading many web pages per day. Hence, the advertising market can be looked at as an electronic trading market.
After reading this article, I immediately applied its concepts to CS 2850 Chapter 15: Sponsored Search Markets, where we explored advertising as a matching market with bidding for slots. In class, we learned in detail about the bidding process used in advertising. Essentially, the advertising slots are the items being sold, and the buyers are the advertisers matched to these slots. We further explored how to design a price-setting procedure for the marketing markets containing slots/advertisers in which truthful bidding is the dominant strategy: the Vickery-Clarke-Groves mechanism. By using this mechanism, we’re making a generalization for the second-price rule for single item auctions and maximizing total valuation. However, we learned the search industry chose to adopt a different mechanism, Generalized Second-Price Auction (GSP). GSP can produce multiple equilibria, some of which can produce socially non-optimal outcomes. Using GSP, bidding behavior leads to untruthful bidding. Knowing all of this information is beneficial when piecing together the quantitative aspects of the advertising bidding process referenced in the article.
Moreover, in class we touched upon the subject that search engines like Google make most of their revenue from advertising as opposed to the sites that appear from PageRank. The article drives this point home, discussing how an ad online is likely bought by an advertiser from Google and the ad-space was likely put to sale through Google; Google’s exchange matches the two together. Edelman questions whether it’s ethical for Google to run the “largest exchange” and also compete as the largest buyer and seller on that exchange.
It is enticing to see how topics from class such as Sponsored Search Markets can be applicable to real-world news like controversy over Google’s power in the ad market and how that ad market works. I look forward to further exploring these concepts.
Source: https://www.wired.com/story/google-ad-market-regulated-like-stock-market/