The second price auction for online advertising

The Second Price Auction for online advertising

By

Willem Daniel Pothof

5645433

Thesis

Presented to the Faculty of Business studies

of the University of Amsterdam

in Partial Fulfillment

of the Requirements

for the Degree of

Master of Economics

The University of Amsterdam

The Second Price Auction for online advertising

By

Willem Daniel Pothof,

The University of Amsterdam

SUPERVISOR: G.T. Vinig

Abstract:

“The relevance of using a Second Price Auction for online advertisements”

The relevance of using a Second Price Auction for the price settlement of online advertisements is researched. A main research question in combination with three sub questions are asked to find this relevance. The main research question that is asked in this research is: “Is the Second Price Auction a useful, effective and efficient method to settle the price for online-advertising in the Netherlands?” The three sub questions explain the success of the Second Price Auction on the most used types of online advertising. The research part was divided into four sections. In the first section, information about the topic was sought. Thereafter, a qualitative survey was conducted among experts in the online advertisement segment. The collected data was used to find the most applicable main research question and the right questions for the quantitative survey. At last, a quantitative survey was conducted among professionals and nonprofessionals in the online advertising segment. The data collected from the quantitative research survey was used to find the answers on the three sub questions and eventually on the main research question.

The relevance of this research lays in the fact that online advertising is a new and upcoming phenomenon. The novelty of using the internet for advertising could create some major opportunities for entrepreneurs. The major entrepreneurial opportunity investigated in this research is the possibility for a perfect price settlement. This perfect price gives the highest utility for the buyer and for the seller of an advertisement. With a perfect price both the companies that want to advertise a product or service, and websites that sell advertisement spots will be better off. The results of this research can change the entire price settlement for the online advertisement segment.

To find the perfect price a Vickrey auction is executed among two different groups of people, nonprofessionals and professionals. The outcome of this auction generates a minimum, maximum, and more important an average price. This average price is the price with the highest demand and with the highest utility rate for the buyer and a seller of an advertisement (Reiley, 2000).

The combination between the Second Price Auction and the online advertisement could be a huge opportunity to change the traditional price settlement. For the most part the advertisement prices are fixed; the Second Price Auction could change this fixed price into a customized price. Every bidder offers exactly what he or she wants to pay for a particular advertisement. This results in a price settlement were the bidder pays exactly what he or she wants to pay and the website receives the amount of money that is most reasonable for the specific type of advertisement.

The findings of the research conclude that the Second Price Auction is a useful solution for the price settlement for all different types of online advertisements. The best combination was the Second Price Auction with Banners, it gave the highest positive relation between the offered prices and actual fixed prices.

Appendix

1.

Relevance ... 5

-2.

Introduction ... 6

-3

Theory ... 8

-3.1.1 The Second Price Auction ... - 9 -

3.1.2 The Vickrey auction ... - 9 -

3.1.3 The GSP auction ... - 12 -

3.1.4 The Second Price Auctions compared ... - 13 -

3.2 Advertising ... 14

-3.2.1 Banners ... - 16 -

3.2.2 Pop Up advertisement ... - 17 -

3.2.3 Pay per Click advertisement ... - 19 -

4

Research Question ... 21

-4.1 Research question ... 21

-4.2 Sub questions ... 21

-5

Research ... 23

-5.1 The qualitative results ... 23

-5.2 The quantitative results ... 25

-5.2.1 Banners ... - 25 -

5.2.2 Pup Up advertisement ... - 30 -

5.2.3 Pay per Click advertisement ... - 33 -

6.0

Conclusion ... 35

-7.0

Discussion... 41

-8.0

Limitations of the research ... 43

Reference List. ... 44

-Appendix ... II

I

2.2 Survey II Anonymous 2 Owner advertisement creating company ... III 2.3 Survey III Anonymous 3 Owner real estate company ... IV 2.4 Survey IV Anonymous 4 Marketing manager large firm ... V 3. List of tables ... VII

3.1. Banners ... VII 3.2 Pup Up ... X 3.3 Pay per Click Google.nl&Weer.nl ... XII 4 Quantitative data Analysis ... XIII 4.1 Banners ... XIII 4.2 Pup Up ... XV 4.3 Pay per Click ... XVII 5. List of figure and illustrations ... XIX

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1.

Relevance

The results that are obtained in this research provide a new viewpoint on the traditional advertising sectors. Advertising has changed a lot since new sectors emerged by the rise of the internet. Nevertheless, the existing research about this topic is very contradictory, especially about the costs involved with Internet advertising. The existing reviews show the advantages and disadvantages of using Internet. For example, Peterson (1997) mentions, that the “high costs of online advertising are the biggest roadblock (94)”. And Dreze & Hussber (2003), call the low costs of online advertising a great opportunity for the future. This contradiction makes it a very interesting topic to analyze.

To find the prices that people want to pay for an online advertisement an auction is used. The data obtained from this auction is compared with the available actual prices involved with online advertising. This research gives companies a clearer view on how much a commercial is worth. The average of the offers resulting from the auction gives a clear view on how much people actually want to pay for a particular type of auction. In addition the type of auction used in this research could result in more customized prices. Everybody bids exactly what he or she want to pay for the offered advertisement. So nobody would pay more than necessary anymore.

So the main relevance for this research is to find a better method for the price settlement of online advertising compared to the more traditional fixed prices. If the Second Price Auction proves to be a success then it can contribute to higher, more context related prices and a higher utility rate. Therefore it could be positive for both the website itself, and for the company that wants to promote its product, service, and or idea using the Internet.

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2.

Introduction

Around 1990 the arrival of the Internet changed a lot for all parts of the value chain, including the marketing department (Floyd & Paxson, 2001). Internet could be used as a new source for the marketing of products and services. This new medium changed the way of communication, for example people switched from fax number to e-mail addresses. By sending e-mails to customers the selling procedure was conducted more rapidly. The importance of the marketing department for a company combined with the radical changes in recent years regarding the Internet makes it an interesting subject to analyze.

Advertising is an important method for the marketing of products and services. However it is not known yet how much online advertisements can contribute to the direct success of a company, which could explain the contradictory in existing research. It is difficult to measure the exact return that a company would earn from an advertisement. Therefore, it is hard to determine the right price for a new advertisement. This paper focuses on this specific part, the main aim will be to establish a perfect price. This perfect price creates the highest utility for the buyer and for the seller of an advertisement. The highest utility could be reached when both parties are best off with a transaction or situation (Beattie et al. 2006). The highest utility rate for the buyer comes from the fact that the buyer could offer exactly what he wants to pay for the specific type of advertisement, the buyer will never pay too much for the advertisement anymore. The seller of an advertisement achieves a higher utility rate by a possible growth in demand and a possible higher price. The prices for most types of advertisements are fixed (Hahn & Hyun, 1991), this research could change this in customized prices. Different types of auctioning can be used, but the most accurate and useful auction in this context is the “Second Price Auction” (Ausubel & Cramton, 2004).

William Vickrey discovered in 1961 that the Second Price Auction could lead to the highest expected utility. He was the first to mention that the Second Price Auction could lead to the perfect price (Ausubel & Cramton, 2004). Before 1960 the Second Price Auction already existed. Stamp collectors used this type of auction to establish the right price since 1893, but it was not used to establish the highest utility until 1961. To determine the highest utility for the advertisement sector the focus is in particularly on this incredible aspect of the Second Price Auction. The importance and success rates for this type of auction are large, nevertheless it was rarely used until 1990 (Ausubel & Cramton, 2004). The use of the Second Price Auction changed with the rise of the Internet, as it was much easier to organize a second bid auction. The most used term for the online version of a Second Price Auction is the “generalized second-price auction”. This type of auction is used to search for the price with

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the highest utility for the advertising company and for the company that needs the advertisement for the promotion of its products.

The research is conducted to make the price settlement for online advertisements clearer and more customized. One of the biggest issues is that most prices are fixed, this makes them too high for smaller companies and too cheap for the larger firms. This often keeps the demand for online advertisements lower than could be possible (Ausubel & Cramton, 2004). This research focuses on finding solutions to overcome this issue. Besides that, this research also creates data which could be used for future price settlement for advertisement sports. This research uses the most applicable form of auctioning to find these prices, and tests this type of auctioning for the online advertising segment. The auction that is often used to find the perfect price for products will be tested on the online advertisement segment. Ausubel & Milgrom (2006), specify that the Second Price Auction is the best solution to find these prices. They also describe that the Vickrey version of the Second Price Auction is the best version for using it online for products. This research test the Vickrey Second Price Auction to find the best price for the online advertisement segment. If the prices of the offerings are much lower than the actual prices for an online advertisement than the prices need to be lowered for a growth in demand and thereby a higher turnover rate. If the offers are much higher compared to the actual prices then the sellers of the advertisements could decide to increase the prices.

In Chapter 4, the research question will be formulated. Prior in chapter three the research elaborates on the phenomenon of the Second Price Auctioning.

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3

Theory

3.1

Auctioning

Auctioning can give the average price that people are willing to pay for a particular product (Ausubel & Crampton, 2004). The fact that auctioning can give these averages makes it very interesting to use for price setting. But that is not the only positive mentionable aspect of using an auction to sell a product. With an auction also the demand for a product can be evaluated and the highest price that someone would pay for the product can be deducted from the offers. There are several types of auctions available, so the question is which one to use to find the “perfect price”? The search for the best auction starts with looking for a type of auction that gathers the highest amounts of bidders (Eldering, 2001). Thereafter the usefulness of several auctions is evaluated, not all possible auctions give the same result. For this research the best, and thereby the most context specific data needs to be collected (Eldering, 2001).

After analyzing the different potential auction types, the “Vickery auctioning method” came out as the most applicable type of auctioning. First of all because this type of auction has an online version named the GSP auction, which makes it feasible to collect enough data to draw conclusions that can be generalized (Brendan & Leme, 2011). Secondly it is easier to focus the Vickrey Second Price Auction on specific types of bidders. In this research the auctioning is done within three different segments, nonprofessionals, professionals, and five owners or marketing managers of companies with more than 1000 employees. Nonprofessionals are people with an age between the ages of 20-65 who have an average amount of knowledge about advertising. With an average amount of knowledge it is meant that they are confronted with advertisements on a daily non-commercial basis. Professionals are persons who are confronted with advertising on a daily commercial basis because of their jobs. The three different versions of the Second Price Auction will now be explained and at last the best suitable version for this research is chosen.

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3.1.1 The Second Price Auction

The beginning of the Second Price Auctioning was around 1880. In this period stamp collectors used the Second Price Auction, although they used it on a different manner (Ausubel et al. 2006). Since 1880 however, the Second Price Auction was used in different ways.

This research uses the Vickrey Auction method of the year 1961. William Spencer Vickrey (1961) created this particular type of auctioning. After his discovery, Clarke (1971) and Groves (1973) discovered different aspects of the second price equation in the seventies. Nowadays this auction method and equation is used for all kinds of websites, for example Amazon.com (Roth & Ockfels, 2002). In the last decade the Second Price Auction is being used to find the perfect price for a product. This thesis will focus on that particular aspect of this type of auctioning, and in addition will aim at using the Internet.

3.1.2 The Vickrey auction

William Spencer Vickrey was an economist who did research for different types of auctions. It was in the year 1961 that he started to analyze the Second Price Auction, which was created around 1880 (Ausubel & Milgom, 2006). Professor Vickrey used this type of auction in a special and different type of manner than it was used before 1961. Vickrey let the bidders, which where agents from different kinds of products, bid the amount they wanted to pay for the particular object as was mentioned by Reiley (2000).

Vickrey (1961) explains that the agents did not know what the other agents reported as their offer price, so it was a closed type of auction. When the offering and the reporting finished, often after a certain amount of time the highest reported1 agent was chosen. This agent won the auction and had to pay the second highest amount for the object. This method gave this type of auction also the name the “second-price sealed exactly what he or she wanted to pay for the particular property. For example, an agent would not offer a price that is too high in its opinion, because that would result in a lower utility rate for the agent. If an agent bids to low he would never win and he will never be satisfied on the end of the auctions. His valuation of the property was higher compared to what he offered which resulted in a losing auction, which also resulted in a lower utility rate (Sandholm, 1996). The Vickrey Second Price Auction always results in a satisfied buyer, he won the auction and needs to pay a lower price than he actually wanted to pay for it. The success of the Vikcrey auction in the past shows that it often also generates a higher demand for the products that are auctioned. This higher

1

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demand often resulted in higher prices compared to the actual prices, which results in a higher income for the seller. In this case both the seller and the buyer are best off, therefore it is named the “best price” (Ausubel & Milgrom 2006). Besides that, the average of all offers on a Vickrey Second Price Auction generate a “perfect price”. On this price the amounts of buyers, the income for the seller, and the amount of buyers that are satisfied are the highest. In the last two decades a number of authors have discussed the different types of SPA. Most of the research about the Vickrey equation concluded that:

The first benefit of this type of auction is that every agent offers exactly what he wants to pay for the product or property.

The second benefit is that counter-speculating is totally useless, the bid depends totally on what you want to pay for it, and not what the other agents are willing to pay for the property.

When each agent plays the auction game in this manner and offers the price that is within his most dominant strategy (bidding the price he wanted to pay) the outcome that was created would be Pareto efficient. As Mackie-Mason & Varian (1994) explain with the next equation: Prob [b1>b2][v1-b2].

Whereby (B1>b2) is the offer of the agent and (v1-b2) is the result of the action.

The equation explains that when an agent offers exactly what he is willing to pay, for a particular object, the outcome always is optimal. It does not matter what another party reports and offers. This makes the Vickrey equation very useful to search for the perfect price. When the auction is finished the exact amount of what people want to pay for a particular product has become apparent. The average price of all these offerings makes it the perfect price to ask for a product or service when a company wants to maximize its sales and make the highest profit. Clarke (1971) and Groves (1973) made an extended version of the Vickrey equitation for value maximization. It has the same outcomes as the Vickrey method when it is used in the adverting segment, in case an agent reports the maximal amount that he wants to pay for an advertisement he is best of. If he reports a lower or higher price his utility will drop and he is the loser in both ways. Within this type of auctioning the agent will always report his maximum willingness to pay (Roth & Ockenfels, 2002). The willingness to pay is the most important aspect for this research. Beside the willingness, the creation of the highest price with the highest utility for the online advertising market is important. The focus is on those parts of the Second Price Auction, which is the same for the standard Vickrey type of auction. Green & Laffont (1979) and Holmstrom (1979) write that under weak and normal

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circumstances this auctioning method is a unique method for directly reporting dominant strategies for products and property. It will create the most efficient outcomes and it leads to zero payments by losing bidders (Ausubel & Malgrom, 2006).

Great successes are booked with the outcomes of the Vickrey auction, but it also has some weaknesses. The first and most important weakness is that it remains difficult for agents to bid exactly what they want to pay for the product as explained by McAfee & McMillian (1987). The second weakness lays in the fact that the bidder gives away his valuations for different types of products, which can result in higher prices as explained by Ausubel et al. (2006). At last the offer shows the strategic budget constraints of the buyer, which is very personal so a lot of people want to keep that for themselves (Ausubel & Malgrom 2006).

The bidders could become anxious that the information, which they give away by offering on a Vickrey auction can be made public. This results in that a Vickrey auction needs to be anonymous except for the winner to make it successful and to ensure that every agent bids exactly his willingness to pay without constrains of anxiousness. It is now made clear that there are some weaknesses and they are mostly on the buyer’s side (Ausubel & Malgrom, 2006).

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3.1.3 The GSP auction

Roth & Ockenfels (2002), mentioned that in the last decade the Second Price Auction has become a regular type of auction used on the Internet. It has been used more regularly in recent years by websites as EBay and Amazon.com to sell books. This is the so-called: “generalized Second Price Auction” or GSP auction. This designation generalizes the small differences within the Second Price Auctions from the year 1880 until now, which has been described by Moldovany & Tietzel (1998). The GSP auction has also been used for offline auctioning, but the collection of buyers is much easier in the online spheres (Roth & Ockenfels, 2002). There are however some problems with online auctions. One of these problems is that the online auctions are time bound, which means that the auction closes after a certain amount of time and the highest bidder wins. The described time bound often causes “sniping”. Sniping is the appearance that the highest amount of money is offered as a bid in the last seconds of the online auction (Eldering, 2001).

The GSP auctioning overcomes this problem almost fully, the offers that are placed are invisible to the other bidders. Thus, the sniping action will be less in a GSP auction compared to a standard auction. As explained in the Vickery part, bidders have the highest utility rate when they bid exactly the amount of money they want to pay for a product and this will not be changed in the last seconds of an auction.

However still some issues are mentionable for the establishment of a perfect price and how this should be measured. Lazar & Semret (1999) explain, that the amount of prior knowledge a person has about an object is the most important aspect before it can be concluded if he or she is an appropriate bidder. Someone’s prior knowledge is the knowledge that someone has of an object before he is confronted with the object, in this case a particular type of online advertisement. Second they mention how the perfect and best price should be measured. Third they explain the problem of the level of resource allocation. The highest priority as they conclude is that all bidders need to have a certain amount of prior knowledge before they bid on a specific product or service. If the bidders lack this prior knowledge the perfect price has not been found correctly, with the consequence that the price is not generalizable (Lazar & Semret, 1999).

Knowing where the shortfalls are within the GSP type of auctioning and knowing it has a lot to do with the Vickrey version of the Second Price Auction brings us at explaining how this type of auctioning exactly works. Lazar & Semret (1998) and Lazar & Semret (1999) explain very clearly how the standard Second Price Auction works.

When a Second Price Auction has five bidders and they all bid like 8,4,10,12 and 4 dollars then the highest bidder the one of 12$ should only have to pay the amount that has

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been bid by the second highest bidder which is 10$. For the generalizable online version of the Second Price Auction that is used for online advertising this works exactly the same (Edelman et al. 2005). Everybody bids what he maximally wants to pay and the highest online bidder pays the amount the second highest bidder has reported. The average of all the bids would be a clear indication of the perfect price for the product. This is true only when there can be assumed that all the bidders have prior knowledge enough to make a clear indication of their willingness to pay, (Lazar & Semret, 1999).

Brendan & Lerne (2011), argue that the GSP has some notable drawback. They mention that it is not truthfully compared to the Vickery type of second bid auctioning. They write about its great success, but also mention that it does not generally guaranty the most efficient outcome. Though it is the mostly used second bid type of auction used for online advertising (Schwarz et al. 2010) and (Brendan & Lerne, 2011). That is why this type of auctioning will be analyzed more thoroughly.

3.1.4 The Second Price Auctions compared

After theorizing the different Second Price Auctions, it can be concluded that the GSP version of the Second Price Auctions is the best one to use for the creation of the best outcomes for this research, although it could be difficult to obtain the right price information with this type of auctioning within the advertising market.

The Vickrey type of the second bid auctions has the most generalizable outcomes and the outcomes are the most truth worthy compared to the other types. The Vickrey auction combined with the online aspect of the GSP gives the best results in this case. The more data there is collected, the more trustworthy the value for the generalizable best price is, but only when the largest part of the bidders has priori knowledge2 (Lazar & Semret, 1999). When this prior knowledge is deficient, the data would not give a clear view of the average willingness to pay for all the different bidders, so it will not be generalizable at all.

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3.2

Advertising

Using the Internet as an advertising mechanism is in the growth stadium of the industrial life cycle3 (Christopher, 1992). Meaning that there are a lot undiscovered possibilities within the online-advertising industry and that it still has some shortcomings, which can be used to create opportunities. The demand in this stage is unpredictable, which makes it an interesting segment to focus on compared to the traditional advertising methods (Aitken et al. 2003), which are more in the maturity/saturation stage of the industrial life cycle (Aitken et al. 2003). The demands for those advertisements are quite clear, and the opportunities are already exploited.

In addition, on account of the newness of Internet for advertising, fresh and pioneer advertising methods are created in the last two decennia (Zeff & Aronson, 1999). Those new methods could give opportunities that need to be analyzed and explored. The new methods do not have a fixed payment rate, so the Second Price Auctioning could be a good solution for the settlement of the perfect and best price. Finally, speculations exist that the Internet does not work at all for advertising (Anonymous 1, 2014). It could work, but right now most of the Internet advertisement methods are not as profitability and successful as were television and paper advertisements. This makes the Internet segment the best segment to focus on for the exploration, analysis and eventually exploitation of new ideas and opportunities.

Advertising is generally regarded as a method for a company to promote its products and services. However, the rise of the Internet changed a lot for advertising. Nowadays, more different types of advertising are available since the Internet was introduced. All the new methods have given companies the opportunity to promote their products in different ways and with different methods (Zeff & Aronson, 1999). Nevertheless, it remains difficult for companies to evaluate the exact amount of money that needs to be invested in the advertisements for the promotion of their products, services and company (Goddard et all, 1992).

The creators and sellers of the advertisements suffer from the same problems; the exact amount that needs to be paid for an advertisement is difficult to predict up front. It is almost never fully clear how much the advertisement will yield for the company (Belch et al. 2008). A lot of research has been done on this topic to search for the best price for an advertisement. Therefore, it is strange to see that the perfect price is still unclear. The outcome for this problem can be the Vickrey second bid auction in combination with the online aspect of the GSP auction.

3 _{The industry life cycle has four different stages, the introduction, the growth, the maturity, saturation and the decline phase}

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The prices for television advertisements, radio advertisements, and paper advertisements are already settled, those methods for advertising are already overanalyzed. Mentioned in the same order, the prices are settled by a pay per minute or in some cases even in a pay per second for the television and the radio advertisements (Brown & Williams, 2002). The paper advertisements are mostly settled by the amount of words, or the largeness of the advertisement and they are settled by a specific rate (Ferguson, 1983). Also, for the newer methods of advertising there are specific rates and specific prices. For example the Pay per Click rate, which means that every time someone clicks on an advertisement, the website will get paid 0.10€ for a high valued advertisement and 0.05€ for a low valued advertisement (Zeff & Aronson, 1999). Thus there is a specific fixed rate that needs to be paid, this rate needs to be evaluated. And the Second Price Auction could be the solution for this evaluation. In addition the Second Price Auction can be a good solution for future price setting, mostly because of its online aspects, its ease in use, and the data that can be collected with it.

There are several types of online advertisements mentionable, for this research only the most used forms of online advertising are used. These three forms of online advertising have a lot of sub categories. These subcategories are all combined under the names of the three most used online advertisement methods. The three types of online advertising are Banners, Pup Up advertising, and Pay per Click advertisement, which are described more accurate below.

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3.2.1 Banners

Banners are advertisements that stick to a page of a website, in this paper only front page Banners are mentioned when there is spoken about Banners. These commercials do not move. They stay on their spot as long as the company that uses the banner pays for it Hupfer & Grey, 2005).

The use of Banners can be an extremely cost efficient and effective method for advertising. A company can promote its products, and can built on the customer relationship at the same time (Hoffman et al. 2000). The traditional methods for advertising do not have this benefit. When a person sees a traditional commercial on for example the television he could decide to buy the product, but no relationship is build. When a customer sees a Banner on the Internet and clicks on it, information about the company and its products can be shared with the customer. If the customer likes the offerings he or she can fill out a form that makes the customer attached to the company. From this moment on the relationship between the customer and the company can be build (Hoffman et al. 2000).

It is interesting to know the advantages of Banners, but it is even more interesting to know the disadvantages. Beside that, the reasons why companies decide not to use the Banners for the promotion of their Products, services and ideas is also an important aspect. One of the major reasons for not using a Banner is that the main difficulty is measuring the on-line impressions of customers on all kinds of different websites. The lack of these outcomes have caused much dissatisfaction amongst commercial managers. The result from this dissatisfaction is that managers are not willing to commit funds to this type of advertising anymore (Hoffman et al. 2000). The Second Price Auction makes it possible for managers to bid exactly what they want to pay for the specific type of online advertisement. The Second Price Auction could be the solution for Banners depending on what prices are offered on the Auction.

Banners with the size of 480 * 60 pixels are used in this research. This is the average size for online Banners so it is the best size to obtain generalizable outcomes (anonymous 2, 2014). Banners with this size are usually referred to as GIF’s (Puneet et al. 2006). The return of a Banner is always higher when the advertisement targets a specific market segment and the amount of advertisements where a customer is exposed to have influence on the

customer’s decision when making the final choice of buying the product or not (Hoffman et al. 2000). The Second Price Auction allows companies to bid exactly the amount what they want to pay for a Banner on a specific website, also referred to as the willingness to pay. More companies join the bidding because they never pay more than what they want to pay. A last, for the right price Banners can be a great solution for brand building, brand reminding,

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The right price, the right place, and the amount of visitors on that place, make the difference for a Banner of getting a high or a low return on the investment (Manchanda et al. 2002). Therefore this paper generalizes the locations of the Banners under the amount of visitors of the websites, and it is assumed that the Banners are context specific for the website where they are placed on, in this case Weer.nl and Google.nl. This means that the Banners used for the Second Price Auction are made to focus on a specific target group. As

Manchanda et al (2002), explains: a Banner is only useful when it focuses on a particular group of people. Three different amounts of impressions, impressions are the amount that a Banner is viewed, are used. A distinction is made between websites with a low amount of impressions, which are Dutch websites with less than 30.000 weekly views, average Banners with 150.000 impressions weekly, and higher Banners with 400.000 individual impressions weekly.

3.2.2 Pop Up advertisement

Pop Up advertisement is a form of advertisement that “pop’s up” when you visit a website. When a customer sees the advertisement he gets an impression of the product or service. The company that put the advertisement online has to pay (Gauselmann, 2004). This means that a company gets billed every time the commercial is visible on the website. This also means that the customer does not always sees the advertisement. That is exactly the main problem of this type of advertisement. It is almost impossible to predict what the returns are.

The other problem of this type of advertisement is that it has some form of intrusiveness. The advertisement Pops Up in the middle of the screen, people can get irritated, which will have a negative effect on the commercial (McCoy et al. 2007).

So why is this type of advertising so popular? (Brehm, 1966) describes the reaction theory which is a social psychological theory, which explains the responses of human behavior when there is a perceive loss of freedom within a particular environment. This behavior can be negative but can also have positive effects. When the commercial Pops Up it almost seems that you as an Internet user do not have a choice. You have to click on it otherwise it will not leave. To get rid of the Pop Up you are inclined to click on the advisement, which brings you exactly to the place where you in the first instance did not wanted to go (Koshy et al. 2002).

From that moment on there are three possibilities. The first possibility is a negative one. You will get irritated; when a person gets irritated he or she can do two things. You leave the website as quickly as possible to never come back, which by the way is almost impossible

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since you activated all kinds of other advertisements by clicking on the advertisement. Or you experience the Boomerang effect (Hyland & Birrell, 1979). The Boomerang effect is a psychological effect, which ensures that people are doing exactly the opposite of what you expect them to do. Result: You forget the website you were visiting in the first place and stay on the website of the commercial (Edwards et al. 2002).

The other possibility is the one where you actually like the product, which is shown on the advertisement. When you like the product which is sold on the website and you actually buy the product. The Pop Up commercial was an immediate success and this will influence you positively on your future vision towards Pop Up commercials (Edwards et al. 2002).

It explains the growing amount of Pop Up advertisements in the last decade. From the three possible outcomes two are positive for the websites that sell Pop Up advertisements. A lot of research is done about this topic, but it still is difficult to conclude from that research if this type of advertising has a positive effect in the long run (Diao & Sundar, 2004). Two out of the three possibilities gives the user negative feelings, which could have negative effects for a company in the future (Rodgers & Thorson, 2000).

The price setting for Pop Up advertising happens with the CPM price. This price explains the costs per thousand impressions, which means that a company pays the CPM price every time the ad appears a thousand times on a specific website. These CPM prices differ per website the Second Price Auction is used in this paper to analyze if the price setting for this type of advertising can be done in a more effective madder compared to how it is done now with fixed prices for every type of advertisement (Busby et al. 2004).

Two websites are used to get a more generalizable conclusion. Both are Dutch websites. One is visited more often, and has therefore more daily impressions. The websites that are used are Weer.nl, which is a Dutch weather channel website with 7.33 million weekly impressions. And Google.nl, which has an average of 56 million weekly impressions. This means that on Google.com the advertisement can be shown 56 million times on a weekly basis for the CPM costs (adformatie.nl. 2014).

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3.2.3 Pay per Click advertisement

At last the Pay per Click method for advertising online is explained, this type of advertisement costs money every time a person clicks on the advertisement. The person involved does not need to buy the product. One of the advantages of using a Pay per Click based commercial is that you exactly know how many people visited your website by clicking on the advertisement. Some other important advantages of using Pay per Click advertising are mentioned by (Google, 2014), these advantages are shown in attachment 4.

One of the disadvantages is that a company does not know how many of the persons that click on the advertisement, actually buy the product (Manageyourads, 2014).

The Pay per Click method is often used as an ad-on for Banners to evaluate the success of the Banner. In this case a third party analyzes the amounts of clicks on a specific Banner. This can be used as a metric to determine the costs which comes with placing an advertisement on a specific website and as a metric to determine the return that comes from the investment in the banner.

The biggest issue with a Pay per Click advertisement is “Hit inflation”. Hit inflations can occur when a website gets hacked and someone puts a virus on the server of the website. This virus can click thousands of times on the advertisement, which results in extremely high costs (Anupam et al. 1999). Solutions for these problems are being created. Examples of solutions are Pay per Sale, with this type of advertisement a company only pays when a transaction is made.

The possibility of a cyber-attack brings this type of advertisement into question. This could lead to a trend towards pay per sale advertisements. So the biggest disadvantage for a Pay per Click advertisement is the threat of fraud. At this moment there are no concrete solutions for this type of fraud. If there are no solutions in the future for this problem then this type of advertising probably will last forever (Anupam et al. 1999).

To analyze the price settlement of a Pay per Click advertisement the same websites are used as with the Pup Up advertisements, namely Weer.nl and Google.nl. These two websites both have the possibility for a Pay per Click advertisement. Google.nl is particular interesting, Google.com is one of the first websites with Amazon.com to implement an advertisement on the Pay per Sale basis. The reason to choose these two websites are the same as explained above.

The current average settlement for the cost per click is based on a fixed rate, high valued advertisements costs on average 0.10€ per click and low valued advertisements cost on average 0.05€ per click. Some websites use only one rate, usually this is 0.10€. Google has

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two different rates which are the rates mentioned above. Weer.nl has only one rate that is 0.15€ per click (Webads, 2014).

The Second Price Auction is used to search for the price for which companies want to promote their products with a Pay per Click commercial. The price that is obtained by that research will be compared with the actual prices. Afterwards conclusions are made about the combination between the Second Price Auction and the price settlement for a Pay per Click commercial.

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4

Research Question

4.1

Research question

The question asked needs to result in a price that reaches the highest utility rate for everybody involved in the online advertisement segment. The auction that can be used for the calcination of a perfect price of products is named the Second Price Auction (Ausubel & Milgorm, 2006). This research tests this type of auction on the online advertisement segment. Therefore the next research question has been formulated:

Is the Vickrey Second Price Auction useful, effective and efficient to settle the price for online-advertising in the Netherlands?

4.2

Sub questions

For the sub questions different scales are used to calculate the perfect price for a broader part of the advertisement segment. This makes the conclusions more generalizable, and there for the data resulting from the research will be more effective, efficient and usable.

The first sub question focusses on the Banner type of the Second Price Auction. Banners are the most used type of online advertisements, which makes them particular interesting to analyze. Besides that, the prices of Banners are fixed, so the possibility for customized prices can change a lot. At last, it is interesting to test these fixed prices with the offers that are made on the Second Price Auction. For banner advertisements three scales are used a low viewed, an average viewed, and a high viewed website. Answers on the sub question could be used to create more customized prices. At last it is tested if the Second Price Auction can be a solution for the price settlement of online Banner commercials,

What is the relation between the offers that come from the Vickrey Second Price Auction and the actual price for the three scales of Banners?

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The second largest type of online advertisements is Pop Up advertising. To find the perfect price, the relation between the offers from the Second Price Auction and the actual prices analyzed. The sub question to find this relation is described below. Two scales are used, the first scale is a website with a low amount of views and the second scale is a website with a high amount of views. The sub question written in cursive is created to test the possibility of price setting by the Second Price Auction.

What is the relation between the offers that come from the Vickrey Second Price Auction and the actual price of two different scales of Pop Up advertisement?

Is the Vickrey Second Price Auction an effective method for the price settlement for Pup Up advertisement?

At last the Pay per Click type of advertisement is tested in combination with the Second Price Auction. To find the best price for a Pay per Click advertisement the next sub question is created. If the Second Price Auction works for this type of advertisement than it can be used by all types of websites. Two types of websites are used to make the data as usable and generable as possible. The same scales are used as with the Pop Up commercial because both websites have the possibility to advertise through both types of advertisements. What is the relation between the offers that come from the Vickrey Second Price Auction and the actual price of two different scales of Pay per Click advertisement?

Is the Vickrey Second Price Auction an effective method for the price settlement for Pay per Click advertisement?

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5

Research

5.1

The qualitative results

To create the right questions for the quantitative questionnaire a qualitative research is conducted with five marketing experts. These marketing experts are confronted with advertising on a daily basis. The market experts involved in the research, create, use, or buy online advertisements. The research is conducted on an anonymous basis. The important questions and answers can be found in appendix 2, for example questions as; what is your name and how old are you, are deleted to keep the questionnaire as anonymous as possible. The most important points of interest that came out of the qualitative research are shown below.

First, the experts gave the advice to focus on three groups of online adverting, namely Banners, Pup Up, and Pay per Click advertising. They explained that these are the most important and most used types of online-advertising.

Second, three of the five experts stated that a secondary price auction could be useful for the price settlement of online advertisements. They also mentioned that the data, collected from non-professionals would be useless for the Pup Up advertisement and the Pay per Click advertisement. They stated that the lack of knowledge within this group makes the data useless, “the offers would not give a realistic view on the prices of the advertisements. For example the lack of knowledge about the CPM for a Pup Up commercial. Therefore the data collected from the non-professionals is only used for the Banners. The Pup Up and Pay per Click types of advertisement are with experts and professionals only and the data that was gathered from non-professionals will be disregarded.

Third, the experts explained that there are different price levels for the settlement of prices for Banners, based on the amount of visitors. The research is conducted in the Netherlands, so one of the experts advised me to take three different levels for Banners. The first level needed to be around 30.000 weekly views, which is the lowest amount of views that is needed for an advertisement to be useful in the Netherlands. The second level is an average of 150.000 and the last level 400.000 weekly views or more (anonymous IV, 2014). He did say that Google.nl has much more average weekly views, but that does not give generalizable outcomes because of the extreme outliers in the amount of weekly visitors on Google.nl, which are disproportional compared to the other Dutch websites.

Fourth, anonymous II&III, 2014 were very interested in the outcome of the Pay per Click offers. The price of a Pay per Click is on almost every website 0.10€, the reason for this is that the price settlement happens by the amount of clicks rather than by the amount of

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views. A website such as Google has much more views and therefore much more clicks so it is more expensive, compared to Weer.nl. “That’s why Google created the possibility to set a maximal amount of clicks, to protect the advertising company” (anonymous I.2014). Anonymous I and II (2014) both suggested that the offers of Weer.nl would be lower than the offers of Google.nl because of the popularity of Google. They both said that “this misunderstanding often happens”.

At last, they all said that the Second Price Auction could be very useful, in particular for the average sized Banners (480 * 60 pixels). There is a big demand for those Banners and there is not a large amount of high quality supply. This could result in much higher prices when using the auction, but at the same time it could result in lower prices for the less popular websites. They all suggested that the Second Price Auction could be a great solution for the creation of more realistic prices for Banners. For Pop Up commercials they were also positive but they did not expect it to work for Pay per Click advertisements because of the fixed price on almost every website, with a maximal deviation of 0.10€ per click.

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5.2

The quantitative results

5.2.1 Banners

Adding banner ads to your online marketing plan is essential (Low T, 2012) CEO of Byte technology

The results of the Second Price Auctions for Banners with less than 30.000, an average of 150.000 and 400.000 views weekly are shown below. The first sixty results are results that come from the offers of nonprofessionals with the age between 20 and 65. It is assumed that the persons among this age group know enough about online advertisements and are confronted with them on a daily basis. The last forty offers are offers from professionals which are; employees that have a marketing function, employees who have the empowerment to decide on marketing issues, and owners of innovative companies who need to decide on marketing issues on a regular basis, which gives them enough information to make reasonable offerings on the auction. The charts are added in the paper and not in the appendix on the bottom of the paper to make the relation and explanation more clear. To make this research more valid and reliable the extreme values need to be removed (Brenman et al. 1993). Anonymous I concluded that, only the people who have prior knowledge about online advertising need to be able to join the auction, the other data needs to be removed (anonymous I, 2014). This means that for Banners with less than 30.000 views the highest bid possible was 600€. For Banners with an average of 150.000 views the maximal possible price to offer was 1.000€ and for the Banner with 400.000 views the maximal amount was 2.500€. All higher bids were removed afterward, and all lower bids than zero were also deleted to make the research as usable as possible.

The averages of the offer price on the auction are shown with the red line, and the actual price of the specific type of banner is shown with the green line. The rectangles show the offers of the experts in the advertising field, and the squires show the bids of the nonprofessionals between the age of 20 and 65.

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5.2.1.1 Low viewed Dutch Banners < 30.000 weekly views

The distribution of the offers gives a clear view on the discrepancy between the offers and the actual price of a Banner on a website that has less than 30.000 weekly views.

In appendix 3.1.1 it is shown that: the ordinary person has an average offer of 279,15€, which means that the Nonprofessional is willing to pay 249,15€ more for this type of Banner than necessary. The highest offer of this group was 10.000€, but it was obvious that this person did not had a clue so only the offers of 600€ where used. So the highest offer was 600€ and this Nonprofessional had to pay 575€.

The expert has an average offer of 98,05€, which means that he or she is willing to pay 68,05 more for this type of commercial than actual was needed. The winner of the expert auction offered 230€ and had to pay 200€.

The overall average of 203,92€ gives a clear view about the lacking knowledge on this type of online advertising. Both the nonprofessional and the professional expert are willing to offer a much higher price than needed. But the professional expert has a more realistic offering. As mentioned by the experts (see § 5.2) professional bidders are on a more realistic level than non-professionals.

€- €100,00 €200,00 €300,00 €400,00 €500,00 €600,00 €700,00 0 20 40 60 80 100 120 Th e pr ic e t he in te rv ie w d w an ts to p ay fo r t hi s t yp e o f b an ne r

The anonymous inteviewed persons

The price of a low viewed banner < 30.000 weekly views

The nonprofessional The actual price 30€ The professional Average offer price Average nonprofessional Average professional

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5.2.1.2 Average viewed Dutch Banners 150.000 weekly views

The distribution of the offers give a clear view on the difference between the offers and the actual price of a Banner on a website that has an average of 150.000 views.

In appendix 3.1.2 it is shown: that the nonprofessional has an average offer price of 568,75€, which means that the Nonprofessional is willing to pay 478,75€ more for this type of Banner than necessary. The highest offer of this group was 25.000€, but it was obvious that this person did not had a clue so only the maximal biddings of 1000€ where used. So the highest offer was 1000€ and this Nonprofessional had to pay 985€.

The professional expert has an average offer of 186,45€, which means that he or she is willing to pay 96,45 more for this type of commercial. The winner of the expert auction offered 400€ and had to pay 325€.

€- €200,00 €400,00 €600,00 €800,00 €1.000,00 €1.200,00 0 20 40 60 80 100 120 Th e pr ic e t he in te rv ie w d w an ts to p ay fo r t hi s t yp e o f b an ne r

The anonymous inteviewed persons

The price of an average viewed banner with 150.000 weekly views

The nonprofessional The actual price 90€ The professional Average offer price Average professional Average nonprofessional

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5.2.1.3 High viewed Dutch Banners 400.000 weekly views

At last the distribution of the offers for the highest viewed Banners with an average of more than 400.000 weekly views. This distribution gives a clear view on the difference between the offers and the actual price of a Banner on a website that has an average of 400.000 weekly views.

In appendix 3.1.3 it is shown: that the ordinary person has an average offer of 1525,51€, which means that the nonprofessional is willing to pay 1025,51€ more for this type of Banner than necessary. The highest offer of this group was 50.000€, but it was obvious that this person did not had a clue so only the maximal biddings of 2.500€ where used. So the highest offer was 2.500€ and this Nonprofessional had to pay 2480€.

The expert has an average offer of 783,09€, which means that he or she is willing to pay 283,09€ more for this type of commercial. The winner of the expert auction offered 1430€ and had to pay 1400€.

€- €500,00 €1.000,00 €1.500,00 €2.000,00 €2.500,00 €3.000,00 0 20 40 60 80 100 120 Th e pr ic e t he in te rv ie w d w an ts to p ay fo r t hi s t yp e o f b an ne r

The anonymous inteviewed persons

The price of an average viewed banner with 400.000 weekly views

The nonprofessional The actual price 500€ The professional Average offer price Average professional Average nonprofessional

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5.2.1.4 Conclusions for the collected data from the Banner offers

But the assumption mentioned by Evans (2009) is the one that is most likely. He concludes that people are not aware of the differences in prices of the different types of commercials that are available online. The lack of knowledge could result in the highly overestimated prices of the Banner type of commercial.

The analysis of the obtained data, which is visible in appendix 4.1.1, shows that the distribution of the data for Banners with <30.000, and data from the survey with an average of 150.000 views is close to symmetrical. The distribution of the data from the 400.000> is far from symmetrical though (Mardia, 1970). The lack of a symmetry within the 400.000> data can be explained from the much higher outliers, which can be declared with the lack of knowledge that a Nonprofessional has about the “more expensive” advertisements.

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5.2.2 Pup Up advertisement

For the Pup Up type of advertisements only “the expert” is invited to take part in the auction. The offers of the nonprofessionals between the age of 20 and 65 were more useless than the offers of nonprofessionals on Banners. The prior knowledge that is needed to make a realistic offer on a Pup Up advertisement was not present in this group. The nonprofessionals have been interviewed though, which is visible in attachment 4. The data that was collected from that research was completely useless though. Even after an explanation about what the CPM meant no realistic offers were made.

The charts below show the offers of the experts on the CPM prices of Weer.nl and Google.nl the offers are the rectangle figures. Also the actual price of the CPM, and the average offer price are visible. The actual price in green and the average offer price in red.

The CPM value is a calculation of the price of impressions, which a company wants for its advertisement. In this case it is based on the full amount for one week. The calculation for the CPM is based on the total impressions for a week divided by 1000 and multiplied with the CPM price.

5.3.2.1 The CPM offers on weer.nl by experts

The offers of the experts are normally distributed which means that they have a standard deviation of less than 5%. Though there still are some experts that are willing to pay more for the Pup Up advertisement than actual is needed. The highest offer on the CPM of Weer.nl is 23€ this person needed to pay 22€ for the Pup Up advertisement because of the rules of the Second Price Auction. The average of the offerings are a bid lower than the actual price for the CPM on Weer.nl. The average was 14,14€, and the actual price is 15€, appendix 3.2.1. This means that the average expert underestimated the value of a Pop Up commercial.

€ - € 5,00 € 10,00 € 15,00 € 20,00 € 25,00 0 5 10 15 20 25 30 Th e of fe r o n th e C PM o f W ee r.n l

The anonymous inteviewed professionals

The offers on the CPM of Weer.nl

The actual price 15€ The offer of the professional Average offer price

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5.2.2.2 The CPM offers on Google.nl by experts

The actual lower price of the CPM of Google comes from the much higher amount of weekly expressions. Weer.nl has an average of 7,33 million weekly impressions where Google.nl has an average of 56 million weekly impressions. A Pop Up advertisement on Google for a full week will cost 56000*10=€560.000 and an advertisement on Weer.nl costs 7333*15=€108.500, appendix 3.2.2. The biggest mistake that someone can make is to underestimate the price of the CPM. The CPM of Google.nl is much lower but the weekly costs are 516% higher.

The offers of the Google Pup Up ads are over estimated, the actual CPM costs of Google.nl are 10€ and the average price of the offers is 12,10€. The main reason for this comes from the fact that people and even some experts underestimate the combination between weekly expressions and the CPM value. As is written above the CPM value for Google.nl is lower but the weekly costs are much higher.

€ - € 5,00 € 10,00 € 15,00 € 20,00 € 25,00 0 5 10 15 20 25 30 Th e of fe r on th e C PM of G oog le .n l

The anonymous inteviewed professionals

The offers on the CPM of Google.nl

The actual price 10€ The offer of the professional Average offer price

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5.2.2.3 Conclusions for the collected data from the Pup Up advertisement offers

The data that are collected has a normal distribution around the averages, which simply means that the average offer prices lay around the actual price. This means that the experts know this type of advertising well enough to make considerable decisions. The overestimation of Google.nl is understandable because of its popularity. However this overestimation can be dangerous because it can be very expensive. Google.nl created a protection for these overestimations. People and companies that want to advertise on Google.nl give the exact amount of money that they want to invest in a Google Pup Up advertisement. From there on Google decides which type of advertisement suites the best, for how long, and how many impressions are possible within this budget (Google, 2014).

No extra research is needed for this type of advertising, from the data collection it can be concluded that people are well aware of this type of advertising and have enough information to make reasonable decisions. In combination with the protection that Google can give companies, it can be concluded that this advertising method already is comparable with the traditional advertising methods. Though this only counts for the safe and more popular websites. Websites that are less popular are much more dangerous and can cost unnecessary money for the buyers of the commercials.

The data attached in appendix 4.2.1 show the distribution of the professional offers for the Pop Up bids for Google.nl and Weer.nl. It can be concluded that the offers of the auction of Google.nl and Weer.nl are symmetrically distributed, both Kurtosis and skewness are between -1 and 1. No error values are mentionable, so no data needs to be removed for drawing generalizable conclusions after the maximal added cap.

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5.2.3 Pay per Click advertisement

The offers that are visible in both charts are the offers that were made by professionals within the advertising sector. All the bids that were made by nonprofessional’s where useless. The data obtained from the nonprofessionals in the Pay per Click sector was far from significant. This difference is due to a lack of knowledge that nonprofessionals have about the Pay per Click advertisement sector, no other conclusion from that data could be made.

5.2.2.1 Weer.nl Pay per Click offers

The chart above shows the distribution of the different bids. It can be seen that most data is distributed around the actual offering price of 0.10€. There are some extreme outliers though. The data in appendix 3.3.1 show that the highest offer is 0, 32€, and it shows that this person needs to pay 0.22€. The amount of 0, 22 € for every click on the advertisement is 0,12€ more than the actual price (appendix 3.3.1).

The obtained data from professionals are not normally distributed, which can be seen in appendix 4.3.1. Both the Skewness and the Kurtosis have extreme values, which is made visible in the boxplot in appendix 4.3.2. The extreme values need to be deleted to make reasonable and generalizable conclusions. But because of the amounts of extreme outliers it will not be deleted.

€ - € 0,05 € 0,10 € 0,15 € 0,20 € 0,25 € 0,30 € 0,35 0 5 10 15 20 25 30 Th e o ffe r o n W ee r.n l

The anonymous inteviewed professionals

The offers on the Price per click of Weer.nl

The offer of the professional The actual offer price 0,10€ Average offer price

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5.2.3.2 Google.nl Pay per Click offers

The offers made by professionals for the price of one click are visible on the chart above. The distribution of the offers is comparable with the offers of a Pay per Click ad on Weer.nl. Almost 90% of the offers lay within 0.10€ of the actual price of such an advertisement.

To investigate if the outliers disrupt the normality of the offers on Google.nl a frequencies test with the statistical program SPSS is done. The outcomes are shown in appendix 4.3. The outcomes conclude that the offers on Pay per Click are not normally distributed. So no generalizable conclusions can be drawn on future offers.

5.2.2.3 Conclusion for the collected data from the Pay per Click advertisement

offers

Appendix 4.3 shows that the distribution of the data is not symmetrical for both the Google.nl and for the Weer.nl offers. The reason that the data is not significant and symmetrical lays within the extreme outliers. After removing the extreme outliers data points the other data points are normally distributed around the actual price of 0,10€, with a significance of less then 5%. This research is focused on the combination of the Second Price Auction with the online advertisement sector. From that point of view the extreme values can’t be removed. Those data points show the great possibility for using the Second Price Auction for Pay per Click advertisements. The highest offer was 0.35€ per click on a Google.nl Pay per Click commercial. The winner with the 0.35€ offer needed to pay 0.32€, which was 0.22€ higher compared to the actual price per click, appendix 3.3.2.

€ - € 0,05 € 0,10 € 0,15 € 0,20 € 0,25 € 0,30 € 0,35 € 0,40 0 5 10 15 20 25 30 Th e o ffe r p ri ce o n Go og le .n l

The anonymous inteviewed professionals

The offers on the Price per click of Google.nl

The offer of the professional The actual offer price 0,10€ Average offer price

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6.0 Conclusion

To answer the main research question “Is the Second Price Auction a useful, effective

and efficient method to settle the price for online-advertising” first the sub questions need to

be discussed.

What is the relation between the offers that come from the Second Price Auction and the actual price of the three different Banner scales?

There is a relation between the actual price and the offers mentionable for the professional bidder on the Second Price Auction for all the three different Banner scales. This is visible in the charts, the boxplot, and the frequencies table shown in appendix 4.1. The relation between the offered price and actual price for professionals is mentioned within the literature. The professionals use the Banner type on a daily basis for their jobs this gives them enough information to make reasonable offerings on the auction. The offers from the nonprofessionals have a lower relation to the actual prices, they are much higher compared to the actual price.

Is the Second Price Auction an effective method to use for the price settlement for Banners?

We expected that the Second Price Auction could generate a perfect price, and that it could give a clear view on the minimum and maximum offerings for Banners.

The auction needs a screening to prevent unreasonable prices that come from the absence of knowledge of the Banner advertisements. The Second Price Auction could generate more realistic prices for different types of websites. The more popular websites could receive higher prices for their banner spots. The less popular websites could find companies and individuals, which they otherwise would not find, that are willing to use the website for the promotion of their products and services. The prices that are settled with the use of the Second Price Auction are much more realistic and customized, which could result in a growth in the use of Banners. Growth in popularity is a positive result for both the websites with Banner spots as for the companies that refused to use online advertising before, because of the distrust in its popularity.

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Concluding remark about the Second Price Auction for Banners:

The average price that result from the offers of the professionals and for the nonprofessionals on the Second Price Auction for Banners compared to the standard fixed price of an online Banner advertisement, is more customized and context specific. For that price the demand and the utility rate are much higher than for the standard fixed price that counts for an online Banner advertisements. This creates a huge opportunity for the entire online Banner advertisement segment. For the buyer it creates an opportunity to get an advertisement that is customized for the right price. For the seller it could mean a growth in demand, which could result in higher prices. For both the professionals and the nonprofessional the offer that won the auction was much higher than the actual price that counted for the particular type of advertisement. For the nonprofessionals this price was much higher, for the professionals the difference between the actual price and the winning offer was lower, but still much higher than it is now with the fixed prices. The literature explains the potential positive effects of using a Second Price Auction on all kinds of products and services. With this research it can be concluded that the Second Price Auction has a high potential for the use on online Banner advertisements. This new inside can be used in the entire online Banner advertisement sector and can change the way how prices for online Banner commercials are settled. The positive aspect of this new way for price settlement is that both the seller and the buyer will be better off, and have therefore a higher utility rate.