Integrating Keyword Advertising and Dynamic Pricing for an Online Market Place

  • Thomas Goertz
  • Jella Pfeiffer
  • Henning Schmidt
  • Franz Rothlauf
Conference paper
Part of the Operations Research Proceedings book series (ORP)


Keyword Advertising is a main marketing instrument for e-commerce companies in order to generate traffic from search engines on their website. The costs for Keyword Advertising are determined in an auction that is conducted for every single search query, which is entered in by a user. In case of an online market place, each adlink provided by the search engine refers to an ordered list of products on the website of the online market place. Hereby, the price of the product is oftentimes one important criteria for the user when deciding for one or the other product from the list. However, existing models assume the price of products to be exogeneous. By taking into account the prices of linked products as a further class of decision variables, we propose a joint version of the advertiser’s decision problem that, apart from finding the optimal bidding strategy for Keyword Advertising, also finds the optimal pricing strategy for the offered products under a budget restriction and capacity constraints.


Search Engine Time Slice Dynamic Price Bidding Strategy Optimal Bidding 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


  1. 1.
    Bitran, G. R., & Caldentey, R. (2003). An overview of pricing models for revenue management. Manufacturing & Service Operations Management, 5(3), 203–229.CrossRefGoogle Scholar
  2. 2.
    Edelman, B., Ostrovsky, M., & Schwarz, M. (2006). Internet advertising and the generalized second price auction: Selling billions of dollars worth of keywords. American Economic Review, 97(1), 242–259.CrossRefGoogle Scholar
  3. 3.
    Edelman, B., & Ostrovsky, M. (2007). Strategic bidder behavior in sponsored search auctions. Decision Support Systems, 43(1), 192–198.CrossRefGoogle Scholar
  4. 4.
    Feng, J., Bhargava, H. K., & Pennock, D. M. (2007). Implementing sponsored search in web search engines: Computational evaluation of alternative mechanisms. INFORMS Journal on Computing, 19(1), 137–148.CrossRefGoogle Scholar
  5. 5.
    Ghose, A., & Yang, S. (2009). An empirical analysis of search engine advertising: Sponsored search in electronic markets. Management Science, 55(10), 1605–1622.CrossRefGoogle Scholar
  6. 6.
    Hosanagar, K., Abhishek, V., (2010). Optimal bidding in multi-item multi-slot sponsored search auctions. Social Science Research Network.
  7. 7.
    Kalish, S. (1985). A new product adoption model with price, advertising and uncertainty. Management Science, 31(12), 1569–1585.CrossRefGoogle Scholar
  8. 8.
    MacDonald, L., & Rasmussen, H. (2009). Revenue management with dynamic pricing and advertising. Journal of Revenue and Pricing Management, 9, 126–136.CrossRefGoogle Scholar
  9. 9.
    McGill, J. I., & Van Ryzin, G. J. (1999). Revenue management: Research overview and prospects. Transportation Science, 33(2), 233–256.CrossRefGoogle Scholar
  10. 10.
    Talluri, K. T., & Van Ryzin, G. J. (2004). The theory and practice of revenue management. Boston: Kluwer Academic Publishers.CrossRefGoogle Scholar
  11. 11.
    Thompson, G. L., & Teng, J. T. (1984). Optimal pricing and advertising policies for new product oligopoly models. Marketing Science, 3(2), 148–168.CrossRefGoogle Scholar
  12. 12.
    Tso, A., & Law, R. (2005). Analysing the online pricing practices of hotels in Hong Kong. International Journal of Hospitality Management, 24(2), 301–307.CrossRefGoogle Scholar
  13. 13.
    Venkateshwara Rao, B., & Smith, B. (2006). Decision support in online travel retailing. Journal of Revenue and Pricing Management, 5(1), 72–80.CrossRefGoogle Scholar
  14. 14.
    Yao, S., & Mela, C. (2009). Sponsored search auctions: Research opportunities in marketing. Foundations and Trends in Marketing, 3(2), 75–126.CrossRefGoogle Scholar

Copyright information

© Springer International Publishing Switzerland 2014

Authors and Affiliations

  • Thomas Goertz
    • 1
  • Jella Pfeiffer
    • 1
  • Henning Schmidt
    • 1
  • Franz Rothlauf
    • 1
  1. 1.Johannes Gutenberg University MainzMainzGermany

Personalised recommendations