To Match or Not to Match: Economics of Cookie Matching in Online Advertising

Modern online advertising increasingly relies on the ability to follow the same user across the Internet using technology called cookie matching to increase efficiency in ad allocation. Web publishers today use this technology to share information about the websites a user has visited, making it possible to target advertisements to users based on their prior history. This begs the question: do publishers (who are competitors for advertising money) always have the incentive to share online information? Intuitive arguments as well as anecdotal evidence suggest that sometimes a premium publisher might suffer information sharing through an effect called information leakage: by sharing user information with the advertiser, the advertiser will be able to target the same user elsewhere on cheaper publishers, leading to a dilution of the value of the supply on the premium publishers.

The goal of this article is to explore this aspect of online information sharing. We show that, when advertisers are homogeneous in the sense that their relative valuations of users are consistent, publishers always agree about the benefits of cookie matching in equilibrium: either all publishers’ revenues benefit, or all suffer, from cookie matching. We also show using a simple model that, when advertisers are not homogeneous, the information leakage indeed can occur, with cookie matching helping one publisher’s revenues while harming the other.