The Effects of Bid-Pulsing on Keyword Performance in Search Engines

The objective of this study is to empirically examine whether and how bid pulsing affects keyword auction performance in search engine advertising. In keyword auctions, advertisers can choose a “set and forget” fixed bidding amount (fixed bidding), or they can change the bid value based on certain types of rules (pulse bidding). A keyword auction data set from Yahoo! reveals that around 60 percent of advertisers frequently changed their bid value for a particular keyword category; moreover, such pulse-bidding behavior is observed throughout the entire time course for some companies. Both cross-sectional and longitudinal analyses on this dataset demonstrate that when a company pulses its bid values, the ranking, the number of exposures, and the number of clicks of the target ad listing will all benefit; in addition, the average bid price will be lower. The results are consistent across four keyword categories. Among the three keyword categories that are in ascending order of level of competitiveness, the magnitude of the pulse-bidding effect also increases. The study extends search engine advertising literature by providing empirical evidence of pulse-bidding strategy under the generalized second price auction and by exploring the consequence of such strategy. Managerially, our results suggest that, keeping all other costs and the bidding environment the same, increasing the frequency and scale of bid pulsing will improve keyword performance; this is especially the case when bidding on a highly competitive keyword category.