An Economic Analysis of Online Advertising Using Behavioral Targeting

Notation Definition and Comments i Index for advertisers j Index for users n Number of advertisers pi Probability that advertiser i’s most targeted user clicks on his advertisement xij Distance between advertiser i and user j along the circle γ Decay factor, which also measures the heterogeneity of users’ preferences qij Decay in the probability that user j clicks on advertiser i vi Unit value that advertiser i derives from each click zi Advertiser i’s reference value, defined as zi = vi pi z(i) The i highest value among all zi πT The publisher’s revenue under traditional advertising πB The publisher’s revenue under behavioral targeting xi Marginal user for allocation under behavioral targeting who has the same value to advertisers i and i + 1 yi Marginal user for payment under behavioral targeting who has the same value to advertisers i – 1 and i + 1 Δi Cross-border effect under behavioral targeting Hi Advertiser i’s expected payment for the users won under behavioral targeting Ai Advertiser i’s payoff under behavioral targeting