סמינר בניהול טכנולוגיה ומערכות מידע
Rodrigo Belo, Associate Professor of Technology and Operations Management, Rotterdam School of Management (RSM), Erasmus University
Title: “Incentive Misalignments in Programmatic Advertising: Evidence from a Randomized Field Experiment”
Abstract: In programmatic digital advertising, firms outsource the bidding for ad impressions to ad platforms. While firms are interested in targeting consumers that respond positively to their advertising, ad platforms are usually rewarded for targeting consumers with high overall purchase probability. We develop a theoretical model that shows that if consumers with high baseline purchase probability are those that respond more positively to advertising, then firms and ad platforms agree on which consumers should be targeted — their incentives are aligned. If, on the other hand, consumers with low baseline purchase probability are the ones for which ads work best, then ad platforms will target consumers that firms do not want to target — the incentives are misaligned. With a large-scale randomized field experiment, addressing 208,538 individual
consumers with advertising, we empirically investigate the implications of the contracted incentives for a firm running a display retargeting campaign. Our unique data set allows us to both causally assess the impact of ads on consumers’ purchase probabilities and estimate the degree of incentive misalignments between the firm and ad platform. We find that, in accordance with the contracted incentives, the ad platform targets consumers that are more likely to purchase. Importantly, we find no evidence that ads are more effective for consumers with higher baseline purchase probability, which renders the ad platform’s bidding suboptimal for the firm. A welfare analysis suggests that the ad platform’s bidding optimization leads to a loss in profit for the firm and an overall decline in welfare.