Buy-it-now or Take-a-chance: A New Pricing Mechanism for Online Advertising
AbstractIncreasingly sophisticated tracking technology oers publishers the ability to oer 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 Society for Economic Dynamics in its series 2012 Meeting Papers with number 443.
Date of creation: 2012
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Other versions of this item:
- L. Elisa Celis & Gregory Lewis & Markus Mobius & Hamid Nazerzadeh, 2011. "Buy-it-now or Take-a-chance: A New Pricing Mechanism for Online Advertising," Working Papers 11-21, NET Institute, revised Nov 2011.
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
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