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Double Marginalization and Misplacement in Online Advertising

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  • Alexander White
  • Kamal Jain
  • Shota Ichihashi
  • Byung‐Cheol Kim

Abstract

Internet users often surf multiple websites as a bundle to fulfill their needs and ‘pay’ for the content by viewing ads. We study how such complementary websites choose advertising policies. Two forces distort the equilibrium away from the industry optimum and the efficient outcome. First, websites place too many ads (double marginalization). Second, given the total advertising volume at equilibrium, websites misallocate ads among themselves (misplacement). Competition in one market segment may eliminate double marginalization but exacerbate misplacement. Introducing micropayments removes misplacement, but the welfare consequences are ambiguous. Policymakers must thus be cautious when applying standard remedies to zero‐price markets.

Suggested Citation

  • Alexander White & Kamal Jain & Shota Ichihashi & Byung‐Cheol Kim, 2024. "Double Marginalization and Misplacement in Online Advertising," Journal of Industrial Economics, Wiley Blackwell, vol. 72(2), pages 940-964, June.
    • Handle: RePEc:bla:jindec:v:72:y:2024:i:2:p:940-964
    DOI: 10.1111/joie.12376
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    References listed on IDEAS

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