Buy-it-now or Take-a-chance: A New Pricing Mechanism for Online Advertising
AbstractIncreasingly sophisticated tracking technology offers publishers the ability to offer targeted advertisements to advertisers. Such targeting enhances advertising efficiency by improving the match quality between advertisers and users, but also thins the market of interested advertisers. Using bidding data from Microsoft's Ad Exchange (AdECN) platform, we show that there is often a substantial gap between the highest and second highest willingness to pay. This motivates our new BIN-TAC mechanism, which is effective in extracting revenue when such a gap exists. Bidders can ``buy-it-now'', or alternatively ``take-a-chance'' in an auction, where the top d > 1 bidders are equally likely to win. The randomized take-a-chance allocation incentivizes high valuation bidders to buy-it-now. We show that for a large class of distributions, this mechanism achieves similar allocations and revenues as Myerson's optimal mechanism, and outperforms the second-price auction with reserve. For the AdECN data, we use structural methods to estimate counterfactual revenues, and find that our BIN-TAC mechanism improves revenue by 11% relative to an optimal second-price auction.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by NET Institute in its series Working Papers with number 11-21.
Length: 30 pages
Date of creation: Sep 2011
Date of revision: Nov 2011
Contact details of provider:
Web page: http://www.NETinst.org/
Advertising; Auctions; Mechanism Design;
Other versions of this item:
- Markus Mobius & Hamid Nazerzadeh & Gregory Lewis & Elisa Celis, 2012. "Buy-it-now or Take-a-chance: A New Pricing Mechanism for Online Advertising," 2012 Meeting Papers 443, Society for Economic Dynamics.
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-01-18 (All new papers)
- NEP-CTA-2012-01-18 (Contract Theory & Applications)
- NEP-IND-2012-01-18 (Industrial Organization)
- NEP-MKT-2012-01-18 (Marketing)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Courty, Pascal & Li, Hao, 2000.
Review of Economic Studies,
Wiley Blackwell, vol. 67(4), pages 697-717, October.
- Dirk Bergemann & Alessandro Bonatti, 2010.
"Targeting in Advertising Markets: Implications for Offline vs. Online Media,"
Levine's Working Paper Archive
661465000000000284, David K. Levine.
- Dirk Bergemann & Alessandro Bonatti, 2010. "Targeting in Advertising Markets: Implications for Offline vs. Online Media," Cowles Foundation Discussion Papers 1758, Cowles Foundation for Research in Economics, Yale University.
- Dirk Bergemann & Alessandro Bonatti, 2010. "Targeting in Advertising Markets: Implications for Offline vs. Online Media," Cowles Foundation Discussion Papers 1758R, Cowles Foundation for Research in Economics, Yale University, revised Aug 2010.
- Bergemann, Dirk & Bonatti, Alessandro, 2010. "Targeting in Advertising Markets: Implications for Offline vs. Online Media," CEPR Discussion Papers 7988, C.E.P.R. Discussion Papers.
- Jean-Charles Rochet & Philippe Chone, 1998. "Ironing, Sweeping, and Multidimensional Screening," Econometrica, Econometric Society, vol. 66(4), pages 783-826, July.
- Svaiter, Benar Fux & Monteiro, Paulo Klinger, 2008.
"Optimal auction with a general distribution: virtual valuation without densities,"
Economics Working Papers (Ensaios Economicos da EPGE)
681, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
- Monteiro, Paulo Klinger & Svaiter, Benar Fux, 2010. "Optimal auction with a general distribution: Virtual valuation without densities," Journal of Mathematical Economics, Elsevier, vol. 46(1), pages 21-31, January.
- Ostrovsky, Michael & Schwarz, Michael, 2009. "Reserve Prices in Internet Advertising Auctions: A Field Experiment," Research Papers 2054, Stanford University, Graduate School of Business.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Nicholas Economides).
If references are entirely missing, you can add them using this form.