Competitive Advantage or Cooperation Strategy? The Role of Data Analytics in Intelligent Advertising

Description

Online advertising has increasingly relied on big data and data analytics to identify and segment audiences and provide more precise targeted advertising service. In digital advertising world, the data management platform (DMP) performs data analytics to analyze data and derive insights. The derived information can be fed into the demand side platform (DSP). A DSP uses such information to bid on and purchase advertising slots on behalf of advertisers. Witnessing the great impact of data analytics, many DSP firms have started to invest on developing the DMP service, or merge with the existing DMP firm and form a new hybrid firm. The newly emerged hybrid firms have brought entirely new interaction dynamics to the advertising market. Motivated by this new phenomenon and the void in literature in studying the role of data analytics in targeted advertising and the co-opetion interactions in the advertising market, this study aims to answer the following questions. First, what is the role of data analytics in the advertising ecosystem? How does it affect the interactions between ad firms? Second, when should a hybrid firm leverage the data analytics capability (DMP) to compete, cooperate, or co-opete with a DSP firm, under what market conditions? Third, how does the ad agents' interaction affect advertisers’ choice over different offering options? Lastly, what is the impact of advertisers' and agents' characteristics on the optimal pricing, market demand, and advertisers' surplus, and consumer welfare? We build an analytical model to analyze the interactions among ad agents and their optimal strategies. Our preliminary analysis for our base model has already shown interesting results that the competition, cooperation, and co-opetition strategies may emerge and be optimal under different market conditions. We plan to conduct a series of model extensions and comparative statics to analyze the research questions in-depth. In addition, we plan to conduct an empirical analysis and some robustness checks to verify our main results. Our study will draw managerial implications for ad firms, advertisers, regulators and policy makers. Our analysis on the market competition will provide guidance for ad firms on choosing different pricing strategies. Our research will shed light on the policy making and regulations in the advertising industry, inform policy makers and regulators about the co-opetition dynamics among ad agents, scrutinize possible tacit collusion, and regulate anti-competition merger and acquisition that may hurt advertisers and consumers' welfare.