Optimal Keyword Bids in Search-Based Advertising with Stochastic Advertisement Positions |
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Authors: | Susan Cholette Özgür Özlük Mahmut Parlar |
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Institution: | (1) San Francisco State University, San Francisco, CA 94132, USA;(2) DeGroote School of Business, McMaster University, Hamilton, Ontario, L8S 4M4, Canada; |
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Abstract: | US expenditures on search-based advertising exceeded $12 billion in 2010. Advertisers bid for keywords, where bid price determines
ad placement, affecting click-through and conversion rates. Advertisers must select keywords, allocating each a proportion
of their fixed daily budget. In this paper, we construct a stochastic model for the selection and allocation process. We provide
analytical results for the single-keyword problem and examine the multiple-keyword problem numerically. We investigate trade-offs
between keywords given varying levels of risk and return. We show the implications of enforcing a probabilistic budget constraint.
Our paper provides a critical analysis of the advertiser’s problem that may guide future research. |
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