To Broad-Match or Not to Broad-Match : An Auctioneer's Dilemma ?

We initiate the study of an interesting aspect of sponsored search advertising, namely the consequences of broad matcha feature where an ad of an advertiser can be mapped to a broader range of relevant queries, and not necessarily to the particular keyword(s) that ad is associated with. In spite of its unanimously believed importance, this aspect has not been formally studied yet, perhaps because of the inherent difficulty involved in formulating a tractable framework that can yield meaningful conclusions. In this paper, we provide a natural and reasonable framework that allows us to make definite statements about the economic outcomes of broad match. Starting with a very natural setting for strategies available to the advertisers, and via a careful look through the algorithmic lens, we first propose solution concepts for the game originating from the strategic behavior of advertisers as they try to optimize their budget allocation across various keywords. Next, we consider two broad match scenarios based on factors such as information asymmetry between advertisers and the auctioneer (i.e. the search engine company), and the extent of auctioneer’s control on the budget splitting. In the first scenario, the advertisers have the full information about broad match and relevant parameters, and can reapportion their own budgets to utilize the extra information; in particular, the auctioneer has no direct control over budget splitting. We show that, the same broad match may lead to different equilibria, one leading to a revenue improvement, whereas another to a revenue loss. This leaves the auctioneer in a dilemma whether to broad-match or not, and consequently leaves him with a computational problem of predicting which broad matches will provably lead to revenue improvement. This motivates us to consider another broad match scenario, where the advertisers have information only about the current scenario, i.e., without any broad-match, and the allocation of the budgets unspent in the current scenario is in the control of the auctioneer. Perhaps not surprisingly, we observe that if the quality of broad match is good, the auctioneer can always improve his revenue by judiciously using broad match. Thus, information seems to be a double-edged sword for the auctioneer. Further, we also discuss the effect of both broad match scenarios on social welfare.