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Optimal keyword bidding in search-based advertising with budget constraint and stochastic ad position

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  • Hande Küçükaydin
  • Barış Selçuk
  • Özgür Özlük

Abstract

This paper analyses the search-based advertising problem from an advertiser’s view point, and proposes optimal bid prices for a set of keywords targeted for the advertising campaign. The advertiser aims to maximise its expected potential revenue given a total budget constraint from a search-based advertising campaign. Optimal bid prices are formulated by considering various characteristics of the keywords such that the expected revenue from a keyword is a function of the ad’s position on the search page, and the ad position is a stochastic function of both the bid price and the competitive landscape for that keyword. We explore this problem analytically and numerically in an effort to generate important managerial insights for campaign setters.

Suggested Citation

  • Hande Küçükaydin & Barış Selçuk & Özgür Özlük, 2020. "Optimal keyword bidding in search-based advertising with budget constraint and stochastic ad position," Journal of the Operational Research Society, Taylor & Francis Journals, vol. 71(4), pages 566-578, April.
    • Handle: RePEc:taf:tjorxx:v:71:y:2020:i:4:p:566-578
    DOI: 10.1080/01605682.2019.1567650
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