Center for Research in Electronic Commerce

Keyword search captures an increasing portion of a firm’s marketing budget and is expected to continue growing. The most important player in the keyword search field is, of course, Google, which has been a primary focus in our research. In a paper to be published in Information Systems Research, a leading Information Systems journal, we analyze Google’s auction mechanism demonstrating that it maximizes revenue while effectively matching advertisers with potential customers. In a paper that will appear in the Journal of Marketing, a leading marketing journal, we describe how the Google network of websites operates.

Another major player in this field is Yahoo which employs a buy-price English auction mechanism different from Google’s. We examine the economic impact of this mechanism in a paper published in Journal of Economic Theory. In cooperation with a Fortune 100 organization, we have initiated an empirical study on consumers’ use of keyword search. The results of our study will improve the company’s keyword biding strategy to reduce costs while simultaneously boosting customer conversion rate.

As in the physical world, reputation and trust are invaluable assets in the online world. Reputable companies such as eBay and Amazon.com have been faced with the challenge of building trust. Lack of an established reputation is often viewed with skepticism since malicious people may reappear as newcomers. This view is in fact detrimental to all newcomers. In a paper forthcoming in Economic Letters, we propose a market mechanism to trade reputation between individuals and organizations. A reputation market is an incentive mechanism creating an environment where people enhance their reputation instead of exploiting it.

Markets have been widely used to collect information and facilitate better decision-making. In a paper published in the Review of Network Economics, we designed a platform through which participants bet on costly, dispersed information of different quality. Participants use the acquired information to elaborate forecasts, and then make bets based on the information’s expected accuracy. Our mechanism selects those with relatively precise information at lower costs and also fulfills the task of crowd sourcing.

Experimenting in a real world environment is imperative to gaining an understanding of what consumers want. However, field experiments are challenging since obtaining the cooperation of established companies is often difficult. To overcome this, we are creating our own company through which we will perform field experiments on a number of research topics such as the impact of word of mouth, herding, digital rights management and co-creation. Using the popular social networking site Facebook as the platform gives us access to information that users provide about themselves such as age, gender, country of origin, religion, sexual orientation, relationship status, education level, work information, and interests among other things. With such valuable information at hand we have the liberty to either form random groups or segment people based on one or more of the above characteristics.

The company will support a social network revolving around the world of music. Emerging artists will be able to upload their songs and music lovers will be able to listen, download, rate, and provide feedback for each song. Eventually, artists will have a choice on the level of digital rights they want their material to have and we will experiment with pricing of digital rights bundles. Until we get to that point we will concentrate on further analyzing the spread and effects of word of mouth, the outcome of herding and the influence co-creation has on consumption.