Hybrid Advertising Auctions

Several major websites offer hybrid auctions that allow advertisers tobid on a per-impression or a per-click basis. We present the firstanalysis of this hybrid advertising auction setting. The conventionalwisdom is that brand advertisers (e.g. Coca-Cola) will bid perimpression, while direct response advertisers (e.g. Amazon.com) willbid per click. We analyze a theoretical model of advertiser bidding toask whether this conventional wisdom will hold up in practice. We findthe opposite in a static game: brand advertisers bid per click, whiledirect response advertisers bid per impression. In a more realisticrepeated game, we find that direct response advertisers bid per click,but brand advertisers may profitably alternate between bidding forclicks and bidding for impressions. The analysis implies that sellersof online advertising (a) may sometimes prefer not to offer advertisersmultiple bidding options, (b) should try to ascertain advertisers' typeswhen they do use hybrid auctions, and (c) should consider advertisers'strategic incentives when forming click-through rate expectations inhybrid auction formats.