IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v66y2020i8p3617-3634.html
   My bibliography  Save this article

Position Ranking and Auctions for Online Marketplaces

Author

Listed:
  • Leon Yang Chu

    (University of Southern California, Los Angeles, Los Angeles, California 90089)

  • Hamid Nazerzadeh

    (University of Southern California, Los Angeles, Los Angeles, California 90089)

  • Heng Zhang

    (University of Southern California, Los Angeles, Los Angeles, California 90089)

Abstract

Online e-commerce platforms, such as Amazon and Taobao, connect thousands of sellers and consumers every day. In this work, we study how such platforms should rank products displayed to consumers and utilize the top and most salient slots. We present a model that considers consumers’ search costs and the externalities sellers impose on each other. This model allows us to study a multiobjective optimization, whose objective includes consumer and seller surplus as well as the sales revenue, and derive the optimal ranking decision. In addition, we propose a surplus-ordered ranking mechanism for selling some of the top slots. This mechanism is motivated in part by Amazon’s sponsored search program. We show that the Vickrey–Clarke–Groves mechanism would not be applicable to our setting and propose a new mechanism. This mechanism is near optimal, performing significantly better than those that do not incentivize sellers to reveal their private information regarding each consumer purchase, such as their profit. Moreover, we generalize our model to settings in which platforms can provide partial information about the products and facilitate the consumer search and show the robustness of our findings.

Suggested Citation

  • Leon Yang Chu & Hamid Nazerzadeh & Heng Zhang, 2020. "Position Ranking and Auctions for Online Marketplaces," Management Science, INFORMS, vol. 66(8), pages 3617-3634, August.
    • Handle: RePEc:inm:ormnsc:v:66:y:2020:i:8:p:3617-3634
    DOI: 10.1287/mnsc.2019.3372
    as

    Download full text from publisher

    File URL: https://doi.org/10.1287/mnsc.2019.3372
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.2019.3372?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Susan Athey & Glenn Ellison, 2011. "Position Auctions with Consumer Search," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(3), pages 1213-1270.
    2. Yuxin Chen & Song Yao, 2017. "Sequential Search with Refinement: Model and Application with Click-Stream Data," Management Science, INFORMS, vol. 63(12), pages 4345-4365, December.
    3. Weitzman, Martin L, 1979. "Optimal Search for the Best Alternative," Econometrica, Econometric Society, vol. 47(3), pages 641-654, May.
    4. Fernando Branco & Monic Sun & J. Miguel Villas-Boas, 2012. "Optimal Search for Product Information," Management Science, INFORMS, vol. 58(11), pages 2037-2056, November.
    5. Garrett van Ryzin & Siddharth Mahajan, 1999. "On the Relationship Between Inventory Costs and Variety Benefits in Retail Assortments," Management Science, INFORMS, vol. 45(11), pages 1496-1509, November.
    6. Hauser, John R., 2014. "Consideration-set heuristics," Journal of Business Research, Elsevier, vol. 67(8), pages 1688-1699.
    7. T. Tony Ke & Zuo-Jun Max Shen & J. Miguel Villas-Boas, 2016. "Search for Information on Multiple Products," Management Science, INFORMS, vol. 62(12), pages 3576-3603, December.
    8. Raluca M. Ursu, 2018. "The Power of Rankings: Quantifying the Effect of Rankings on Online Consumer Search and Purchase Decisions," Marketing Science, INFORMS, vol. 37(4), pages 530-552, August.
    9. Benjamin Edelman & Michael Ostrovsky & Michael Schwarz, 2007. "Internet Advertising and the Generalized Second-Price Auction: Selling Billions of Dollars Worth of Keywords," American Economic Review, American Economic Association, vol. 97(1), pages 242-259, March.
    10. Negin Golrezaei & Hamid Nazerzadeh & Paat Rusmevichientong, 2014. "Real-Time Optimization of Personalized Assortments," Management Science, INFORMS, vol. 60(6), pages 1532-1551, June.
    11. Anthony Dukes & Lin Liu, 2016. "Online Shopping Intermediaries: The Strategic Design of Search Environments," Management Science, INFORMS, vol. 62(4), pages 1064-1077, April.
    12. Yongmin Chen & Chuan He, 2011. "Paid Placement: Advertising and Search on the Internet," Economic Journal, Royal Economic Society, vol. 121(556), pages 309-328, November.
    13. Asher Wolinsky, 1986. "True Monopolistic Competition as a Result of Imperfect Information," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(3), pages 493-511.
    14. Przemyslaw Jeziorski & Ilya Segal, 2015. "What Makes Them Click: Empirical Analysis of Consumer Demand for Search Advertising," American Economic Journal: Microeconomics, American Economic Association, vol. 7(3), pages 24-53, August.
    15. Jun B. Kim & Paulo Albuquerque & Bart J. Bronnenberg, 2010. "Online Demand Under Limited Consumer Search," Marketing Science, INFORMS, vol. 29(6), pages 1001-1023, 11-12.
    16. Kalyan Talluri & Garrett van Ryzin, 2004. "Revenue Management Under a General Discrete Choice Model of Consumer Behavior," Management Science, INFORMS, vol. 50(1), pages 15-33, January.
    17. James M. Davis & Guillermo Gallego & Huseyin Topaloglu, 2014. "Assortment Optimization Under Variants of the Nested Logit Model," Operations Research, INFORMS, vol. 62(2), pages 250-273, April.
    18. Pierre L’Ecuyer & Patrick Maillé & Nicolás E. Stier-Moses & Bruno Tuffin, 2017. "Revenue-Maximizing Rankings for Online Platforms with Quality-Sensitive Consumers," Operations Research, INFORMS, vol. 65(2), pages 408-423, April.
    19. Tat Y. Chan & Young-Hoon Park, 2015. "Consumer Search Activities and the Value of Ad Positions in Sponsored Search Advertising," Marketing Science, INFORMS, vol. 34(4), pages 606-623, July.
    20. Song Yao & Carl F. Mela, 2011. "A Dynamic Model of Sponsored Search Advertising," Marketing Science, INFORMS, vol. 30(3), pages 447-468, 05-06.
    21. Juan Feng & Hemant K. Bhargava & David M. Pennock, 2007. "Implementing Sponsored Search in Web Search Engines: Computational Evaluation of Alternative Mechanisms," INFORMS Journal on Computing, INFORMS, vol. 19(1), pages 137-148, February.
    22. Giuseppe Moscarini & Lones Smith, 2001. "The Optimal Level of Experimentation," Econometrica, Econometric Society, vol. 69(6), pages 1629-1644, November.
    23. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
    24. Ruxian Wang & Ozge Sahin, 2018. "The Impact of Consumer Search Cost on Assortment Planning and Pricing," Management Science, INFORMS, vol. 64(8), pages 3649-3666, August.
    25. Guang Li & Paat Rusmevichientong & Huseyin Topaloglu, 2015. "The d -Level Nested Logit Model: Assortment and Price Optimization Problems," Operations Research, INFORMS, vol. 63(2), pages 325-342, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mahsa Derakhshan & Negin Golrezaei & Vahideh Manshadi & Vahab Mirrokni, 2022. "Product Ranking on Online Platforms," Management Science, INFORMS, vol. 68(6), pages 4024-4041, June.
    2. Dipankar Das, 2023. "A Model of Competitive Assortment Planning Algorithm," Papers 2307.09479, arXiv.org.
    3. Tino Werner, 2023. "Quantitative robustness of instance ranking problems," Annals of the Institute of Statistical Mathematics, Springer;The Institute of Statistical Mathematics, vol. 75(2), pages 335-368, April.
    4. Alison Watts, 2021. "Fairness and Efficiency in Online Advertising Mechanisms," Games, MDPI, vol. 12(2), pages 1-11, April.
    5. Rafael P. Greminger, 2022. "Heterogeneous Position Effects and the Power of Rankings," Papers 2210.16408, arXiv.org, revised Dec 2023.
    6. Santiago R. Balseiro & Antoine Désir, 2023. "Incentive-Compatible Assortment Optimization for Sponsored Products," Management Science, INFORMS, vol. 69(8), pages 4668-4684, August.
    7. Tino Werner, 2022. "Elicitability of Instance and Object Ranking," Decision Analysis, INFORMS, vol. 19(2), pages 123-140, June.
    8. Chen Jin & Luyi Yang & Kartik Hosanagar, 2023. "To Brush or Not to Brush: Product Rankings, Consumer Search, and Fake Orders," Information Systems Research, INFORMS, vol. 34(2), pages 532-552, June.
    9. Wenjia Ba & Haim Mendelson & Mingxi Zhu, 2020. "Sales Policies for a Virtual Assistant," Papers 2009.03719, arXiv.org.
    10. Margarida V. B. Santos & Isabel Mota & Pedro Campos, 2023. "Analysis of online position auctions for search engine marketing," Journal of Marketing Analytics, Palgrave Macmillan, vol. 11(3), pages 409-425, September.
    11. Shen, Bin & Xu, Xiaoyan & Yuan, Quan, 2020. "Selling secondhand products through an online platform with blockchain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 142(C).
    12. Ying‐Ju Chen, 2021. "Optimal Design of Revenue‐Maximizing Position Auctions with Consumer Search," Production and Operations Management, Production and Operations Management Society, vol. 30(9), pages 3297-3316, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hana Choi & Carl F. Mela, 2019. "Monetizing Online Marketplaces," Marketing Science, INFORMS, vol. 38(6), pages 948-972, November.
    2. Mahsa Derakhshan & Negin Golrezaei & Vahideh Manshadi & Vahab Mirrokni, 2022. "Product Ranking on Online Platforms," Management Science, INFORMS, vol. 68(6), pages 4024-4041, June.
    3. Rafael P. Greminger, 2022. "Heterogeneous Position Effects and the Power of Rankings," Papers 2210.16408, arXiv.org, revised Dec 2023.
    4. Qingwei Jin & Mengyan Zhu & Yi Yang & Lin Liu, 2022. "Consumer search with anticipated regret," Production and Operations Management, Production and Operations Management Society, vol. 31(8), pages 3337-3351, August.
    5. Raluca M. Ursu & Daria Dzyabura, 2020. "Retailers’ product location problem with consumer search," Quantitative Marketing and Economics (QME), Springer, vol. 18(2), pages 125-154, June.
    6. Xinyu Cao & Yuting Zhu, 2024. "The Power of Commitment in Group Search," Marketing Science, INFORMS, vol. 43(1), pages 213-228, January.
    7. Xiangyu Gao & Stefanus Jasin & Sajjad Najafi & Huanan Zhang, 2022. "Joint Learning and Optimization for Multi-Product Pricing (and Ranking) Under a General Cascade Click Model," Management Science, INFORMS, vol. 68(10), pages 7362-7382, October.
    8. Raluca M. Ursu, 2018. "The Power of Rankings: Quantifying the Effect of Rankings on Online Consumer Search and Purchase Decisions," Marketing Science, INFORMS, vol. 37(4), pages 530-552, August.
    9. Giovanni Compiani & Gregory Lewis & Sida Peng & Peichun Wang, 2024. "Online Search and Optimal Product Rankings: An Empirical Framework," Marketing Science, INFORMS, vol. 43(3), pages 615-636, May.
    10. Rafael P. Greminger, 2022. "Optimal Search and Discovery," Management Science, INFORMS, vol. 68(5), pages 3904-3924, May.
    11. Yuxin Chen & Song Yao, 2017. "Sequential Search with Refinement: Model and Application with Click-Stream Data," Management Science, INFORMS, vol. 63(12), pages 4345-4365, December.
    12. Ali Aouad & Danny Segev, 2021. "Display Optimization for Vertically Differentiated Locations Under Multinomial Logit Preferences," Management Science, INFORMS, vol. 67(6), pages 3519-3550, June.
    13. Liang Guo, 2021. "Endogenous Evaluation and Sequential Search," Marketing Science, INFORMS, vol. 40(3), pages 413-427, May.
    14. Raluca M. Ursu & Qingliang Wang & Pradeep K. Chintagunta, 2020. "Search Duration," Marketing Science, INFORMS, vol. 39(5), pages 849-871, September.
    15. Wei Zhou & Zidong Wang, 2020. "Competing for Search Traffic in Query Markets: Entry Strategy, Platform Design, and Entrepreneurship," Working Papers 20-12, NET Institute.
    16. Shijie Lu & Yi Zhu & Anthony Dukes, 2015. "Position Auctions with Budget Constraints: Implications for Advertisers and Publishers," Marketing Science, INFORMS, vol. 34(6), pages 897-905, November.
    17. Mika Sumida & Guillermo Gallego & Paat Rusmevichientong & Huseyin Topaloglu & James Davis, 2021. "Revenue-Utility Tradeoff in Assortment Optimization Under the Multinomial Logit Model with Totally Unimodular Constraints," Management Science, INFORMS, vol. 67(5), pages 2845-2869, May.
    18. Pedro M. Gardete & Carlos D. Santos, 2020. "No data? No problem! A Search-based Recommendation System with Cold Starts," Papers 2010.03455, arXiv.org.
    19. Mark Armstrong, 2017. "Ordered Consumer Search," Journal of the European Economic Association, European Economic Association, vol. 15(5), pages 989-1024.
    20. Paat Rusmevichientong & Mika Sumida & Huseyin Topaloglu, 2020. "Dynamic Assortment Optimization for Reusable Products with Random Usage Durations," Management Science, INFORMS, vol. 66(7), pages 2820-2844, July.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:66:y:2020:i:8:p:3617-3634. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.