KISDI News(detail) − KISDI KOREA INFORMATION SOCIETY DEVELOPMENT INSTITUTE

※ URL(Korean): https://www.kisdi.re.kr/bbs/view.do?bbsSn=114654&key=m2101113055776

KISDI Releases Report on “A Study on Auction Competition in Online Advertising Markets”
- Provides theoretical framework for analyzing the social welfare effects of online search advertising

The Korea Information Society Development Institute (KISDI, President Sangkyu Rhee) recently published KISDI Basic Research (24-04), "A Study on Auction Competition in Online Advertising Market."
The report analyzed the impact of online search advertising services on social benefits and discussed how social benefits from advertising are allocated among consumers, producers, and platforms.
Online search advertising is a major source of revenue for search engines such as Google and Naver. Since its introduction in 1997, the search advertising market has grown rapidly due to its highly targeted nature, accounting for up to half of the online advertising market in major countries. At the same time, the search advertising market has become increasingly concentrated due to the efficient nature of the platform as the number of users has grown, raising concerns about the market control power of the search engines.
The report analyzes the social welfare and market control power of the search advertising market by establishing a model based on auction theory that combines advertising auctions and product market competition.
The report found that the more intense the competition among advertisers competing for the same keywords, the smaller the increase in social benefits from search advertising, and the larger the share of platform revenue in the incremental social benefits. In other words, the more moderate the competition among advertisers, the larger the increase in social benefits from search advertising, and the more evenly the incremental social benefits are distributed among consumers, producers, and platforms. This is because intense competition leads to higher ad costs, and these higher costs make it difficult for advertisers to increase their output in response to rising demand.
The report also compares the social benefits of the auction mechanism. When advertisers competing for the same keywords have high product substitutability, second-price auctions are more desirable than first-price auctions from a social welfare perspective. On the other hand, if the substitutability between products is low, the best-price auction is more desirable than the second-price auction.

Associate Research Fellow Sosung Baik said, "This study provides a theoretical framework for analyzing the social welfare effects of online search advertising." "We hope that it will provide an academic basis for policy formulation for the development of the search advertising industry," Baik said.

Searching scope

Searching period

Searching option

Alignment sequence

KISDI News

KISDI Releases Report on ‘A Study on Auction Competition in Online Advertising Markets’