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.
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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)
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