Estimating the Value of Retargeting in the Online Advertising Auctions

In response to growing privacy concerns, many browsers have implemented restrictions on third-party cookies in online advertising. Retargeting, the most effective method of targeting advertisements to users who have already visited a website, is mostly affected by the third-party cookie ban. This paper investigates the economic consequences of prohibiting retargeting in advertisements on Chrome, a dominant browser, by analyzing data from a demand-side platform (DSP). Our analysis shows that the DSP's bid values for retargeted impressions on Chrome are 82.30% (Android) and 160.36% (Windows) higher than those for non-retargeted impressions. Yet this difference understates the true disparity in the value of retargeting, as retargeting status is recorded only for internal auction winners in our data. Modeling internal advertising auction and correcting selection bias reveals even significant disparities between retargeted and non-retargeted, with 331.00% higher valuations for Android and 456.66% higher for Windows users. Our counterfactual simulations indicate that a complete ban on retargeting would reduce expected bid values by 24.41% (Android) and 33.07% (Windows) if the retargeting share is 10%.