Category: marketplaces

Marketplaces, including market design, market rules, and pricing.

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Competing Ad Auctions

Ashlagi, Itai, Benjamin Edelman, and Hoan Soo Lee. “Competing Ad Auctions.” Harvard Business School Working Paper, No. 10-055, January 2010. (Revised May 2010, February 2011, September 2013.)

We present a two-stage model of competing ad auctions. Search engines attract users via Cournot-style competition. Meanwhile, each advertiser must pay a participation cost to use each ad platform, and advertiser entry strategies are derived using symmetric Bayes-Nash equilibrium that lead to the VCG outcome of the ad auctions. Consistent with our model of participation costs, we find empirical evidence that multi-homing advertisers are larger than single-homing advertisers. We then link our model to search engine market conditions: We derive comparative statics on consumer choice parameters, presenting relationships between market share, quality, and user welfare. We also analyze the prospect of joining auctions to mitigate participation costs, and we characterize when such joins do and do not increase welfare.

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Mobilizing an Online Business (teaching materials) with Peter Coles

Coles, Peter, and Benjamin Edelman. “Mobilizing an Online Business.” Harvard Business School Background Note 913-061, June 2013. (educator access at HBP. request a courtesy copy.)

Entrepreneurs starting online businesses often need to mobilize multiple sets of users or customers, each of whom hesitates to participate unless others join also. This case presents several challenges with similar structure.

Supplements:

Mobilizing an Online Business — slide supplement – PowerPoint Supplement (HBP 913702)

Mobilizing an Online Business — slide supplement (widescreen) – PowerPoint Supplement (HBP 914053)

Teaching Materials:

Mobilizing an Online Business – Teaching Note (HBP 913062)

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Pricing and Partnership at Zillow, Inc. (teaching materials) with Peter Coles

Coles, Peter, and Benjamin Edelman. “Pricing and Partnership at Zillow, Inc.” Harvard Business School Case 913-021, November 2012. (Revised March 2015.) (educator access at HBP. request a courtesy copy.)

As Zillow’s real estate search service gains user adoption, some real estate professionals question Zillow’s policies, fees, and power. Dissatisfied real estate professionals could remove listings from Zillow, reducing the service’s value to users. Should Zillow adjust its approach in order to address complaints?

Teaching Materials:

Pricing and Partnership at Zillow, Inc. – Teaching Note (HBP 914043)

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Earnings and Ratings at Google Answers

Edelman, Benjamin. “Earnings and Ratings at Google Answers.” Economic Inquiry 50, no. 2 (April 2012): 309-320. (draft as first circulated in 2004.)

I analyze all questions and answers from the inception of the Google Answers service through November 2003, and I find notable trends in answerer behavior: more experienced answerers provide answers with the characteristics askers most value, receiving higher ratings as a result. Answerer earnings increase in experience, consistent with learning on the job. Answerers who focus on particular question categories provide answers of higher quality but earn lower pay per hour (perhaps reflecting a lack of versatility). Answers provided during the business day receive higher payments per hour (a compensating differential for working when outside options are most attractive), but more experienced answerers tend to forego these opportunities.

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Enhanced Airline Passenger Protections – comment to DOT

In the DOT’s first Enhancing Airline Passenger Protections proceeding, I filed a comment as to the risk of opportunistic behavior by GDS’s taking advantage of potential new regulations requiring airlines to purchase information distribution services. After pointing out the potential unintended consequences of the regulation DOT was considering, I offered three alternatives that would improve the information available to consumers while avoiding negative side effects.

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Measuring the Perpetrators and Funders of Typosquatting

Moore, Tyler, and Benjamin Edelman. “Measuring the Perpetrators and Funders of Typosquatting.” Lecture Notes in Computer Science. Springer-Verlag. Financial Cryptography and Data Security: Proceedings of the International Conference 6052 (2010). (Introduction, Web appendix.)

We describe a method for identifying “typosquatting”, the intentional registration of misspellings of popular website addresses. We estimate that at least 938,000 typosquatting domains target the top 3,264 .com sites, and we crawl more than 285,000 of these domains to analyze their revenue sources. We find that 80% are supported by pay-per-click ads, often advertising the correctly spelled domain and its competitors. Another 20% include static redirection to other sites. We present an automated technique that uncovered 75 otherwise legitimate websites which benefited from direct links from thousands of misspellings of competing websites. Using regression analysis, we find that websites in categories with higher pay-per-click ad prices face more typosquatting registrations, indicating that ad platforms such as Google AdWords exacerbate typosquatting. However, our investigations also confirm the feasibility of significantly reducing typosquatting. We find that typosquatting is highly concentrated: of typo domains showing Google ads, 63% use one of five advertising IDs, and some large name servers host typosquatting domains as much as four times as often as the web as a whole.

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Deterring Online Advertising Fraud Through Optimal Payment in Arrears

Edelman, Benjamin. “Deterring Online Advertising Fraud Through Optimal Payment in Arrears.” Financial Cryptography and Data Security: Proceedings of the International Conference (September 2009). (Springer-Verlag Lecture Notes in Computer Science.) (Featured in Working Knowledge: Reducing Risk with Online Advertising.)

Online advertisers face substantial difficulty in selecting and supervising small advertising partners. Fraud can be well hidden, and limited reputation systems reduce accountability. But partners are not paid until after their work is complete, and advertisers can extend this delay both to improve detection of improper partner practices and to punish partners who turn out to be rule-breakers. I capture these relationships in a screening model with delayed payments and probabilistic delayed observation of agents’ types. I derive conditions in which an advertising principal can set its payment delay to deter rogue agents and to attract solely or primarily good-type agents. Through the savings from excluding rogue agents, the principal can increase its profits while offering increased payments to good-type agents. I estimate that a leading affiliate network could have invoked an optimal payment delay to eliminate 71% of fraud without decreasing profit.

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Priced and Unpriced Online Markets

Edelman, Benjamin. “Priced and Unpriced Online Markets.” Journal of Economic Perspectives 23, no. 3 (Summer 2009): 21-36.

With forces both supporting and opposing zero prices, typical Internet-related activities–like surfing the web, web searches, and e-mail, along with behind-the-scenes practices like domain names and the allocation of IP (Internet Protocol) addresses–present a natural context to reevaluate our sense of the tradeoffs that arise between free and a positive price. In this piece, I offer a series of specific examples of resources offered without charge, for a positive price, or for a flat fee (“all-you-can-eat”). I conclude by assessing the characteristics that shape pricing structure for these resources.

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TheLadders (teaching materials) with Peter Coles, Brian Hall, and Nicole Bennett

Coles, Peter A., Benjamin Edelman, Brian J. Hall, and Nicole Bennett. “TheLadders (A).” Harvard Business School Case 908-061, April 2008. (Revised March 2015.) (educator access at HBP. request a courtesy copy.)

Despite strong appeal among job seekers and outside recruiters, TheLadders’ corporate job listings seem to lag. Could raising prices help solve the problem? TheLadders considers this strategic paradox.

Supplments:

The Ladder (B) – Supplement (HBP 914017)

The Ladder (C) – Supplement (HBP 916017)

Teaching Materials:

The Ladder – Teaching Note (HBP 909005)

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Delaying Payment to Deter Online Advertising Fraud

In a new article, I introduce an alternative method of fraud prevention for certain online advertising systems. By delaying payments, a merchant or network differentially harms bad affiliates (who rightly worry they may get caught) without unduly harming good affiliates (who know they’ll get paid, and who receive a bonus in compensation for the delay). With a suitable delay, a merchant or network can deter many bad affiliates while retaining the good.

My working draft:

Optimal Deterrence when Judgment-Proof Agents are Paid in Arrears – with an Application to Online Advertising Fraud

Details on my approach, including initial data on merchants’ and networks’ current payment terms.

(update: published as Edelman, Benjamin. “Deterring Online Advertising Fraud Through Optimal Payment in Arrears.” Financial Cryptography and Data Security: Proceedings of the International Conference (September 2009). (Springer-Verlag Lecture Notes in Computer Science.))