Estimating the Value of Retargeting in the Online Advertising Market

To protect users' online privacy, many Internet browsers prohibit advertisers from tracking user information or targeting potential consumers. Advertisers are concerned that such retargeting prohibition policies could lead to a reduction in ads' click probability, thereby affecting their bidding valuations. Bid data from a demand-side platform (DSP) reveals that the bid valuations for non-retargeted impressions are more than 60% lower than those for retargeted ones. However, since the retargeting status is only observed for bids winning the internal auction at the DSP, we need to correct the selection bias. To address this, we develop an internal auction model and structurally estimate the advertisers' CPC and CTR. Counterfactual simulations using the estimate indicate the expected bid reduces by 38.10% on average if retargeting is prohibited compared to the scenario with the industry-average retargeting prevalence.