Elasticity of prices is the bread and butter of econometrics. But, how can we apply elasticity to bidding?
The elasticity of prices is the bread and butter of econometrics. You normally hear it as “elasticity of demand,” where you are trying to understand how much more demand there will be if we increase the price by a certain amount. Now in bidding ecosystems, marketeers try to understand how many “clicks” we will get if we increase our bids by X%. In this post, I will show you a way to calculate the elasticity of bids in PPC marketing.
PS 1: The examples you will read in this post come from 1 of the 100s of campaigns I was managing at Skyscanner. I have removed all identifiers to protect sharing information, but you will be able to see how to calculate elasticity of bids using real distributed data.
PS 2: All images are authored by me unless otherwise specified.
Before diving into calculating elasticity of bids, let’s go back to econometrics 101 and understand what is elasticity of supply. Taken directly from this article: “Price elasticity of supply indicates how quickly producers shift production levels in response to price changes.” [1] As…