Analyzing positioning strategies in sponsored search auctions under CTR-based quality scoring

Yong Yuan, Dajun Zeng, Huimin Zhao, Linjing Li

Research output: Contribution to journalArticle

11 Citations (Scopus)

Abstract

Quality score (QS) plays a critical role in sponsored search advertising (SSA) auctions, and in practice is closely correlated to the historical click-through rate (CTR) of an advertisement. The CTR-QS correlation may impose great influence on advertisers' positioning strategies of selecting the targeting slots in the sponsored list. In the literature, however, QS is implicitly assumed to be an independent variable and exogenously assigned by Web search engines, so that little theoretical or managerial insights can be offered to help understand the positioning dynamics in SSA auctions with CTR-QS correlation. We strive to bridge this research gap in this paper. Based on a discrete time-dependent optimal control model, which explicitly captures the relationship between the historical CTR and QS, we determine the optimal strategy for revenue-maximizing advertisers' QS-based positioning decisions through a policy-iteration-based numerical approximation method. We also investigate two practically-used heuristic strategies, namely the greedy and farsighted positioning strategies, aiming to examine and help understand advertisers' real-world positioning dynamics. Our analysis indicates that both the optimal and greedy positioning strategies lead advertisers to monotonically increase or decrease their targeting slots over time, which may cause a polarization trend emerging in SSA markets. Meanwhile, the farsighted positioning strategy can accelerate the polarization. Our simulations show that both the greedy and farsighted strategies have good revenue performance. Our findings indicate that advertisers should monotonically adjust their targeting positions to maximize their revenue in CTR-QS correlated SSA auctions. Our findings also highlight the need for Web search engine companies to set a lowered weight for historical CTRs or use position-normalized CTRs in their QS measurements, so as to suppress the polarization trend.

Original languageEnglish (US)
Article number6960033
Pages (from-to)688-701
Number of pages14
JournalIEEE Transactions on Systems, Man, and Cybernetics Part A:Systems and Humans
Volume45
Issue number4
DOIs
StatePublished - Apr 1 2015

Fingerprint

Marketing
Dynamic positioning
Polarization
Search engines
Industry

Keywords

  • Click-through rate (CTR)
  • optimal control
  • polarization
  • quality score (QS)
  • sponsored search

ASJC Scopus subject areas

  • Computer Science Applications
  • Human-Computer Interaction
  • Software
  • Control and Systems Engineering
  • Electrical and Electronic Engineering

Cite this

Analyzing positioning strategies in sponsored search auctions under CTR-based quality scoring. / Yuan, Yong; Zeng, Dajun; Zhao, Huimin; Li, Linjing.

In: IEEE Transactions on Systems, Man, and Cybernetics Part A:Systems and Humans, Vol. 45, No. 4, 6960033, 01.04.2015, p. 688-701.

Research output: Contribution to journalArticle

@article{c53a22e0087947b9b721ad5075e2e801,
title = "Analyzing positioning strategies in sponsored search auctions under CTR-based quality scoring",
abstract = "Quality score (QS) plays a critical role in sponsored search advertising (SSA) auctions, and in practice is closely correlated to the historical click-through rate (CTR) of an advertisement. The CTR-QS correlation may impose great influence on advertisers' positioning strategies of selecting the targeting slots in the sponsored list. In the literature, however, QS is implicitly assumed to be an independent variable and exogenously assigned by Web search engines, so that little theoretical or managerial insights can be offered to help understand the positioning dynamics in SSA auctions with CTR-QS correlation. We strive to bridge this research gap in this paper. Based on a discrete time-dependent optimal control model, which explicitly captures the relationship between the historical CTR and QS, we determine the optimal strategy for revenue-maximizing advertisers' QS-based positioning decisions through a policy-iteration-based numerical approximation method. We also investigate two practically-used heuristic strategies, namely the greedy and farsighted positioning strategies, aiming to examine and help understand advertisers' real-world positioning dynamics. Our analysis indicates that both the optimal and greedy positioning strategies lead advertisers to monotonically increase or decrease their targeting slots over time, which may cause a polarization trend emerging in SSA markets. Meanwhile, the farsighted positioning strategy can accelerate the polarization. Our simulations show that both the greedy and farsighted strategies have good revenue performance. Our findings indicate that advertisers should monotonically adjust their targeting positions to maximize their revenue in CTR-QS correlated SSA auctions. Our findings also highlight the need for Web search engine companies to set a lowered weight for historical CTRs or use position-normalized CTRs in their QS measurements, so as to suppress the polarization trend.",
keywords = "Click-through rate (CTR), optimal control, polarization, quality score (QS), sponsored search",
author = "Yong Yuan and Dajun Zeng and Huimin Zhao and Linjing Li",
year = "2015",
month = "4",
day = "1",
doi = "10.1109/TSMC.2014.2366434",
language = "English (US)",
volume = "45",
pages = "688--701",
journal = "IEEE Transactions on Systems, Man, and Cybernetics Part A:Systems and Humans.",
issn = "1083-4427",
publisher = "Institute of Electrical and Electronics Engineers Inc.",
number = "4",

}

TY - JOUR

T1 - Analyzing positioning strategies in sponsored search auctions under CTR-based quality scoring

AU - Yuan, Yong

AU - Zeng, Dajun

AU - Zhao, Huimin

AU - Li, Linjing

PY - 2015/4/1

Y1 - 2015/4/1

N2 - Quality score (QS) plays a critical role in sponsored search advertising (SSA) auctions, and in practice is closely correlated to the historical click-through rate (CTR) of an advertisement. The CTR-QS correlation may impose great influence on advertisers' positioning strategies of selecting the targeting slots in the sponsored list. In the literature, however, QS is implicitly assumed to be an independent variable and exogenously assigned by Web search engines, so that little theoretical or managerial insights can be offered to help understand the positioning dynamics in SSA auctions with CTR-QS correlation. We strive to bridge this research gap in this paper. Based on a discrete time-dependent optimal control model, which explicitly captures the relationship between the historical CTR and QS, we determine the optimal strategy for revenue-maximizing advertisers' QS-based positioning decisions through a policy-iteration-based numerical approximation method. We also investigate two practically-used heuristic strategies, namely the greedy and farsighted positioning strategies, aiming to examine and help understand advertisers' real-world positioning dynamics. Our analysis indicates that both the optimal and greedy positioning strategies lead advertisers to monotonically increase or decrease their targeting slots over time, which may cause a polarization trend emerging in SSA markets. Meanwhile, the farsighted positioning strategy can accelerate the polarization. Our simulations show that both the greedy and farsighted strategies have good revenue performance. Our findings indicate that advertisers should monotonically adjust their targeting positions to maximize their revenue in CTR-QS correlated SSA auctions. Our findings also highlight the need for Web search engine companies to set a lowered weight for historical CTRs or use position-normalized CTRs in their QS measurements, so as to suppress the polarization trend.

AB - Quality score (QS) plays a critical role in sponsored search advertising (SSA) auctions, and in practice is closely correlated to the historical click-through rate (CTR) of an advertisement. The CTR-QS correlation may impose great influence on advertisers' positioning strategies of selecting the targeting slots in the sponsored list. In the literature, however, QS is implicitly assumed to be an independent variable and exogenously assigned by Web search engines, so that little theoretical or managerial insights can be offered to help understand the positioning dynamics in SSA auctions with CTR-QS correlation. We strive to bridge this research gap in this paper. Based on a discrete time-dependent optimal control model, which explicitly captures the relationship between the historical CTR and QS, we determine the optimal strategy for revenue-maximizing advertisers' QS-based positioning decisions through a policy-iteration-based numerical approximation method. We also investigate two practically-used heuristic strategies, namely the greedy and farsighted positioning strategies, aiming to examine and help understand advertisers' real-world positioning dynamics. Our analysis indicates that both the optimal and greedy positioning strategies lead advertisers to monotonically increase or decrease their targeting slots over time, which may cause a polarization trend emerging in SSA markets. Meanwhile, the farsighted positioning strategy can accelerate the polarization. Our simulations show that both the greedy and farsighted strategies have good revenue performance. Our findings indicate that advertisers should monotonically adjust their targeting positions to maximize their revenue in CTR-QS correlated SSA auctions. Our findings also highlight the need for Web search engine companies to set a lowered weight for historical CTRs or use position-normalized CTRs in their QS measurements, so as to suppress the polarization trend.

KW - Click-through rate (CTR)

KW - optimal control

KW - polarization

KW - quality score (QS)

KW - sponsored search

UR - http://www.scopus.com/inward/record.url?scp=84925068380&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=84925068380&partnerID=8YFLogxK

U2 - 10.1109/TSMC.2014.2366434

DO - 10.1109/TSMC.2014.2366434

M3 - Article

AN - SCOPUS:84925068380

VL - 45

SP - 688

EP - 701

JO - IEEE Transactions on Systems, Man, and Cybernetics Part A:Systems and Humans.

JF - IEEE Transactions on Systems, Man, and Cybernetics Part A:Systems and Humans.

SN - 1083-4427

IS - 4

M1 - 6960033

ER -