Working Paper Article Version 1 This version is not peer-reviewed

Does Product Quality Signal Improve the Information Matching Efficiency of the Sponsored Search Auction Mechanism?

Version 1 : Received: 17 April 2020 / Approved: 20 April 2020 / Online: 20 April 2020 (14:50:57 CEST)

How to cite: Cai, Z.; Liu, L.; Li, S. Does Product Quality Signal Improve the Information Matching Efficiency of the Sponsored Search Auction Mechanism?. Preprints 2020, 2020040364 Cai, Z.; Liu, L.; Li, S. Does Product Quality Signal Improve the Information Matching Efficiency of the Sponsored Search Auction Mechanism?. Preprints 2020, 2020040364

Abstract

This article investigates the information matching efficiency of the sponsored auction mechanism of search engine platform by implementing consumer purchase strategy. Then we examine the incentive mechanism for sellers to report product quality truthfully under information asymmetry and the reason how product quality signal could improve information matching efficiency of the sponsored auction mechanism. Using the data collected from Baidu search engine, we empirically test the theoretical research results. Our main research finding: under information asymmetry and without product quality signal mechanism, the equilibrium of bidding rank cannot match the consumer purchase strategy at all, causing the consumer welfare to suffer double losses due to the adverse selection of sellers. In the contrast, the search engine could improve partially the information matching efficiency of the sponsored search auction mechanism by identifying the product quality signal brought by the sellers with the highest product quality. However, the search engine has no incentive to design product quality signal for sellers.

Subject Areas

bidding rank; information asymmetry; search engine; product quality

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