Research On Keywords Auctions With Advertisers’ Endogenous Investment

With the flourishing development of the Internet,the scale of global search engine users has been increasing.Search engine uses keywords auction to provide information to Internet search engine users and promotes commercial advertising in order to gain high profits.This brings high returns to advertisers.It is an innovative use of the traditional auction transaction theory in the field of keywords auctions.Driven by the search engine’s auction rules which have more and more attention to the weight of the advertisers and advertisers’ own interests,the advertisers invest to improve their performance in order to attract more users to click.Studying advertisers’ investment behavior and its impact has far-reaching implications.Based on this background,this dissertation introduces the endogenous investment of advertisers,considering the participants’ risk aversion characteristics and search engine’s reserve price.Multiple analysis methods including game theory,probability theory,comparative static analysis,optimization theory and numerical analysis,etc.are adopted to explore the bidding strategies and investment decision of advertisers,as well as the optimal reserve price that maximizes the revenue of search engine or the social welfare.The analysis above is intented to expand the research on keywords auction theory in the fields of advertiser investment,risk aversion and search engine’s reserve price setting.The main research contents are generalized as follows:Firstly,we introduce the endogenous investment into the clicks which advertisers can finally achieve and divide advertisers into two types according to their initial performance.A two-stage model is established which consists of investment stage and bidding stage in order to analyse the two types of advertisers’ optimal investment decisions and equilbrium bidding strategy.Based on the equilibrium bidding strategy of advertisers,this paper focuses on the existence and uniqueness of the cut-off valuation for low-type advertisers in type conversion,and then compares the optimal investment of the two types of advertisers under different situation.In addition,it explores the influence of search engine auction rules on low-type advertisers’ type conversion and the optimal investment of advertisers.These conclusions are verified by numerical analysis.Secondly,in traditional auction theory,there are quite adequate resrarch on bidders with different attitudes toward risk from both the theoretical and empirical aspect.However,the research on extending the risk-neutral model to risk aversion in keyword auction theory needs prompt development.Considering the situation that the risk-neutral assumption of the advertiser under the keyword auction is not necessarily satisfied,risk-averse advertisers are introduced.This study which consists of advertisers’ endogenous investment and search engine’s reserve price explores the equilibrium bidding strategy and the optimal investment decision-making of the risk-averse advertisers.Then,sensitivity analysis on bidding and investment about the degree of advertisers’ risk aversion and the number of advertisers,as well as the reserve price is thoroughly discussed.Meanwhile,this dissertation deduces the determinant solution of the search engine’s optimal reserve price under the goals of maximizing search engine revenue and maximizing social welfare.Meanwhile,the tendency of search engine’s revenue is derived theoretically through mathematical method.Using numerical examples,we analyze the impact of the risk aversion of advertisers and the number of advertisers on search engine’s optimal reserve price and revenue.At the same time,the impact of reserve price on search engine’s revenue and social welfare is further analyzed.Finally,this paper relaxes the assumption that search engine is risk-neutral.This release of such assumptions can better reflect the diversity of search engine preferences.Under the auction rules that the risk-averse search engine set the reserve price,we discuss the equilibrium bidding strategy and the optimal investment decision of risk neutral advertisers.This paper analyzes the influence of the number of advertisers and search engine’s reserve price on the bidding strategies and investment decisions of advertisers with mathematical discussing and numerical examples.At the same time,how the number of advertisers and search engine’s risk aversion influence the search engine’s optimal reserve price and revenue,as well as how search engine sets the reserve price rules to balance its own revenue and social welfare are discussed by numerical examples.