Document Type
Discussion Paper
Publication Date
3-2-2025
CFDP Number
2429
CFDP Pages
29
Journal of Economic Literature (JEL) Code(s)
D44, D82, D83
Abstract
In digital advertising, the allocation of sponsored search, sponsored product, or display advertisements is mediated by auctions. The generation of bids in these auctions for attention is increasingly supported by auto-bidding algorithms and platform-provided data. We analyze the equilibrium properties of a sequence of increasingly sophisticated auto-bidding algorithms. First, we consider the equilibrium bidding behavior of an individual advertiser who controls the auto-bidding algorithm through the choice of their budget. Second, we examine the interaction when all bidders use budget-controlled bidding algorithms. Finally, we derive the bidding algorithm that maximizes the platform’s revenue while ensuring all advertisers continue to participate.
Recommended Citation
Bergemann, Dirk; Bonatti, Alessandro; and Wu, Nicholas, "Bidding with Budgets: Algorithmic and Data-Driven Bids in Digital Advertising" (2025). Cowles Foundation Discussion Papers. 2841.
https://elischolar.library.yale.edu/cowles-discussion-paper-series/2841
