Auctions for Online Display Advertising Exchanges: Approximations and Design
AbstractAd Exchanges are emerging Internet markets where advertisers may purchase display ad placements, in real-time and based on specific viewer information, directly from publishers via a simple auction mechanism. Advertisers join these markets with a pre-specified budget and participate in multiple second-price auctions over the length of a campaign. This paper studies the competitive landscape that arises in Ad Exchanges and the implications for publishers' decisions. Our first main contribution is to introduce the novel notion of a Fluid Mean Field Equilibrium (FMFE) that is behaviorally appealing, computationally tractable, and in some important cases yields a closed-form characterization. Moreover, we show that a FMFE approximates well the rational behavior of advertisers in large markets. Our second main contribution is to use this framework to provide sharp prescriptions for key auction design decisions that publishers face in these markets, such as the reserve price, the allocation of impressions to the exchange versus an alternative channel, and the disclosure of viewers' information. Notably, we show that proper adjustment of the reserve price is key in (1) making profitable for the publisher to try selling all impressions in the exchange before utilizing the alternative channel; and (2) compensating for the thinner markets created by greater disclosure of viewers' information.
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Bibliographic InfoPaper provided by NET Institute in its series Working Papers with number 12-11.
Length: 47 pages
Date of creation: Sep 2012
Date of revision:
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Web page: http://www.NETinst.org/
auction design; revenue management; ad exchange; display advertising; internet; budget constraints; dynamic games; mean field; fl uid approximation;
Find related papers by JEL classification:
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-10-20 (All new papers)
- NEP-COM-2012-10-20 (Industrial Competition)
- NEP-GTH-2012-10-20 (Game Theory)
- NEP-ICT-2012-10-20 (Information & Communication Technologies)
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.:
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"Estimation of a Dynamic Auction Game,"
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- Jonathan Levin & Paul Milgrom, 2010. "Online Advertising: Heterogeneity and Conflation in Market Design," American Economic Review, American Economic Association, vol. 100(2), pages 603-07, May.
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