Search Advertising: Budget Allocation Across Search Engines

In this paper, we investigate advertisers’ budgeting and bidding strategies across multiple search platforms. We develop a model with two platforms and budget-limited advertisers that compete for advertising slots across platforms. When platform reserve prices are low and exogenous, we find that symmetric advertisers pursue asymmetric budget allocation strategies and partially differentiate: one advertiser allocates a share of its budget to platform A higher than A’s share of user traffic and a share of its budget to platform B lower than B’s share of user traffic, whereas the second advertiser does the reverse. This partial differentiation balances two forces: a demand force arising from a desire to be present on both platforms to obtain more clicks and a strategic force driven by a desire to be budget dominant on at least one platform to obtain clicks at a lower cost. We then show that the benefit from differentiation for advertisers diminishes if platforms strategically increase their reserve prices. At reserve prices that maximize platform revenues, advertisers allocate their budgets proportional to each platform’s share of user traffic, and platforms fully appropriate these budgets.