Chapter | The Handbook of Market Design | Forthcoming

The Design of Online Advertising Markets

by Benjamin Edelman

Abstract

Because the market for online advertising is both new and fast-changing, participants experiment with all manner of variations. Should an advertiser's payment reflect the number of times an ad was shown, the number of times it was clicked, the number of sales that resulted, or the dollar value of those sales? Should ads be text, images, video, or something else entirely? Should measurement be performed by an ad network, an advertiser, or some intermediary? Market participants have chosen all these options at various points, and prevailing views have changed repeatedly. Online advertising therefore presents a natural environment in which to evaluate alternatives for these and other design choices. In this piece, I review the basics of online advertising, then turn to design decisions as to ad pricing, measurement, incentives, and fraud.

Keywords: Misleading and Fraudulent Advertising; Online Advertising; Price; Market Design; Measurement and Metrics; Sales; Motivation and Incentives; Online Technology;

Citation:

Edelman, Benjamin. "The Design of Online Advertising Markets." Chap. 15 in The Handbook of Market Design, edited by Nir Vulkan, Alvin E. Roth, and Zvika Neeman. Oxford University Press, 2013.