Integrating Keyword Advertising and Dynamic Pricing for an Online Market Place

Keyword Advertising is a main marketing instrument for e-commerce companies in order to generate traffic from search engines on their website. The costs for Keyword Advertising are determined in an auction that is conducted for every single search query, which is entered in by a user. In case of an online market place, each adlink provided by the search engine refers to an ordered list of products on the website of the online market place. Hereby, the price of the product is oftentimes one important criteria for the user when deciding for one or the other product from the list. However, existing models assume the price of products to be exogeneous. By taking into account the prices of linked products as a further class of decision variables, we propose a joint version of the advertiser's decision problem that, apart from finding the optimal bidding strategy for Keyword Advertising, also finds the optimal pricing strategy for the offered products under a budget restriction and capacity constraints.