Enhancing User Experience: Unveiling the Role of the Quality Score Metrics

Social advertising platforms and search engines employ the so-called quality score to favor certain advertisers in ad auctions. These scores typically consider several factors including ad relevance, click-through rate (CTR), and landing page quality. While quality scores are often justified as a mechanism to enhance ad rank and reduce cost per click for high-quality ads, this study examines their broader role in incentivizing advertisers with varying investment costs to improve landing page quality and explores the implications for advertisers’ profits and the platform’s revenue in a setting where landing page quality is an endogenous decision made by advertisers. The results suggest that a quality score function in excess of the CTR incentivizes advertisers to invest in page quality in a non-monotonic way. These incentives have dual effects on auction dynamics: While advertisers can lower their cost per click by improving quality, such incentives also increase advertisers’ competitive pressure to maintain their quality advantage and secure the discount per click, particularly for those in higher positions. Our findings reveal that the former effect dominates, leading to increased advertiser profits with higher rewards. However, the intensified competition slows the profit growth for the top-position advertiser when the bottom-position advertiser invests. For platform revenue, which comprises both auction revenue and benefits derived from user experience, a quality score in excess of CTR is recommended when the user experience benefits are substantial enough to compensate for auction revenue losses. In a scenario where page quality is capped, our results show that a quality score in excess of CTR can generate higher platform revenue, even in the absence of user experience benefits.