IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v61y2015i4p864-884.html
   My bibliography  Save this article

Repeated Auctions with Budgets in Ad Exchanges: Approximations and Design

Author

Listed:
  • Santiago R. Balseiro

    (Fuqua School of Business, Duke University, Durham, North Carolina 27708)

  • Omar Besbes

    (Graduate School of Business, Columbia University, New York, New York 10027)

  • Gabriel Y. Weintraub

    (Graduate School of Business, Columbia University, New York, New York 10027)

Abstract

Ad 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 prespecified 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. The presence of budgets introduces dynamic interactions among advertisers that need to be taken into account when attempting to characterize the bidding landscape or the impact of changes in the auction design. To this end, we introduce the notion of a fluid mean-field equilibrium (FMFE) that is behaviorally appealing and computationally tractable, and in some important cases, it yields a closed-form characterization. We establish that an FMFE approximates well the rational behavior of advertisers in these markets. We then show how this framework may be used to provide sharp prescriptions for key auction design decisions that publishers face in these markets. In particular, we show that ignoring budgets, a common practice in this literature, can result in significant profit losses for the publisher when setting the reserve price. This paper was accepted by Dimitris Bertsimas, optimization .

Suggested Citation

  • Santiago R. Balseiro & Omar Besbes & Gabriel Y. Weintraub, 2015. "Repeated Auctions with Budgets in Ad Exchanges: Approximations and Design," Management Science, INFORMS, vol. 61(4), pages 864-884, April.
    • Handle: RePEc:inm:ormnsc:v:61:y:2015:i:4:p:864-884
    DOI: 10.1287/mnsc.2014.2022
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.2014.2022
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.2014.2022?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Stephen G. Eick & William A. Massey & Ward Whitt, 1993. "The Physics of the Mt/G/∞ Queue," Operations Research, INFORMS, vol. 41(4), pages 731-742, August.
    2. Doraszelski, Ulrich & Pakes, Ariel, 2007. "A Framework for Applied Dynamic Analysis in IO," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 30, pages 1887-1966, Elsevier.
    3. Santiago R. Balseiro & Jon Feldman & Vahab Mirrokni & S. Muthukrishnan, 2014. "Yield Optimization of Display Advertising with Ad Exchange," Management Science, INFORMS, vol. 60(12), pages 2886-2907, December.
    4. Gabriel Y. Weintraub & C. Lanier Benkard & Benjamin Van Roy, 2008. "Markov Perfect Industry Dynamics With Many Firms," Econometrica, Econometric Society, vol. 76(6), pages 1375-1411, November.
    5. Mireia Jofre-Bonet & Martin Pesendorfer, 2003. "Estimation of a Dynamic Auction Game," Econometrica, Econometric Society, vol. 71(5), pages 1443-1489, September.
    6. Victor F. Araman & Ioana Popescu, 2010. "Media Revenue Management with Audience Uncertainty: Balancing Upfront and Spot Market Sales," Manufacturing & Service Operations Management, INFORMS, vol. 12(2), pages 190-212, December.
    7. Guillermo Gallego & Garrett van Ryzin, 1994. "Optimal Dynamic Pricing of Inventories with Stochastic Demand over Finite Horizons," Management Science, INFORMS, vol. 40(8), pages 999-1020, August.
    8. Che, Yeon-Koo & Gale, Ian, 2000. "The Optimal Mechanism for Selling to a Budget-Constrained Buyer," Journal of Economic Theory, Elsevier, vol. 92(2), pages 198-233, June.
    9. Yeon-Koo Che & Ian Gale, 1998. "Standard Auctions with Financially Constrained Bidders," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 65(1), pages 1-21.
    10. Victor Martínez-de-Albéniz & Kalyan Talluri, 2011. "Dynamic Price Competition with Fixed Capacities," Management Science, INFORMS, vol. 57(6), pages 1078-1093, June.
    11. Kalyan Talluri & Garrett van Ryzin, 1998. "An Analysis of Bid-Price Controls for Network Revenue Management," Management Science, INFORMS, vol. 44(11-Part-1), pages 1577-1593, November.
    12. Maskin, Eric S., 2000. "Auctions, development, and privatization: Efficient auctions with liquidity-constrained buyers," European Economic Review, Elsevier, vol. 44(4-6), pages 667-681, May.
    13. Shijie Lu & Yi Zhu & Anthony Dukes, 2015. "Position Auctions with Budget Constraints: Implications for Advertisers and Publishers," Marketing Science, INFORMS, vol. 34(6), pages 897-905, November.
    14. Guillermo Gallego & Ming Hu, 2014. "Dynamic Pricing of Perishable Assets Under Competition," Management Science, INFORMS, vol. 60(5), pages 1241-1259, May.
    15. L. Elisa Celis & Gregory Lewis & Markus Mobius & Hamid Nazerzadeh, 2014. "Buy-It-Now or Take-a-Chance: Price Discrimination Through Randomized Auctions," Management Science, INFORMS, vol. 60(12), pages 2927-2948, December.
    16. Sami Najafi-Asadolahi & Kristin Fridgeirsdottir, 2014. "Cost-per-Click Pricing for Display Advertising," Manufacturing & Service Operations Management, INFORMS, vol. 16(4), pages 482-497, October.
    17. Marc Dudey, 1992. "Dynamic Edgeworth-Bertrand Competition," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(4), pages 1461-1477.
    18. Krishnamurthy Iyer & Ramesh Johari & Mukund Sundararajan, 2014. "Mean Field Equilibria of Dynamic Auctions with Learning," Management Science, INFORMS, vol. 60(12), pages 2949-2970, December.
    19. Jonathan Levin & Paul Milgrom, 2010. "Online Advertising: Heterogeneity and Conflation in Market Design," American Economic Review, American Economic Association, vol. 100(2), pages 603-607, May.
    20. Mark Armstrong & Robert Porter (ed.), 2007. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 3, number 1.
    21. Martin A. Lariviere, 2006. "A Note on Probability Distributions with Increasing Generalized Failure Rates," Operations Research, INFORMS, vol. 54(3), pages 602-604, June.
    22. John Turner, 2012. "The Planning of Guaranteed Targeted Display Advertising," Operations Research, INFORMS, vol. 60(1), pages 18-33, February.
    23. Gustavo Vulcano & Garrett van Ryzin & Costis Maglaras, 2002. "Optimal Dynamic Auctions for Revenue Management," Management Science, INFORMS, vol. 48(11), pages 1388-1407, November.
    24. Laffont, Jean-Jacques & Maskin, Eric, 1980. "Optimal reservation price in the Vickery auction," Economics Letters, Elsevier, vol. 6(4), pages 309-313.
    25. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
    26. Pai, Mallesh M. & Vohra, Rakesh, 2014. "Optimal auctions with financially constrained buyers," Journal of Economic Theory, Elsevier, vol. 150(C), pages 383-425.
    27. Laffont, Jean-Jacques & Robert, Jacques, 1996. "Optimal auction with financially constrained buyers," Economics Letters, Elsevier, vol. 52(2), pages 181-186, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Santiago R. Balseiro & Omar Besbes & Gabriel Y. Weintraub, 2012. "Auctions for Online Display Advertising Exchanges: Approximations and Design," Working Papers 12-11, NET Institute.
    2. Santiago R. Balseiro & Ozan Candogan, 2017. "Optimal Contracts for Intermediaries in Online Advertising," Operations Research, INFORMS, vol. 65(4), pages 878-896, August.
    3. Santiago R. Balseiro & Omar Besbes & Gabriel Y. Weintraub, 2019. "Dynamic Mechanism Design with Budget-Constrained Buyers Under Limited Commitment," Operations Research, INFORMS, vol. 67(3), pages 711-730, May.
    4. Hana Choi & Carl F. Mela & Santiago R. Balseiro & Adam Leary, 2020. "Online Display Advertising Markets: A Literature Review and Future Directions," Information Systems Research, INFORMS, vol. 31(2), pages 556-575, June.
    5. Ilan Lobel, 2021. "Revenue Management and the Rise of the Algorithmic Economy," Management Science, INFORMS, vol. 67(9), pages 5389-5398, September.
    6. Burkett, Justin, 2016. "Optimally constraining a bidder using a simple budget," Theoretical Economics, Econometric Society, vol. 11(1), January.
    7. Santiago Balseiro & Anthony Kim & Mohammad Mahdian & Vahab Mirrokni, 2021. "Budget-Management Strategies in Repeated Auctions," Operations Research, INFORMS, vol. 69(3), pages 859-876, May.
    8. Richter, Michael, 2019. "Mechanism design with budget constraints and a population of agents," Games and Economic Behavior, Elsevier, vol. 115(C), pages 30-47.
    9. Carbajal, Juan Carlos & Mu'alem, Ahuva, 2020. "Selling mechanisms for a financially constrained buyer," Games and Economic Behavior, Elsevier, vol. 124(C), pages 386-405.
    10. Boulatov, Alexei & Severinov, Sergei, 2021. "Optimal and efficient mechanisms with asymmetrically budget constrained buyers," Games and Economic Behavior, Elsevier, vol. 127(C), pages 155-178.
    11. Hummel, Patrick, 2017. "Endogenous budget constraints," Mathematical Social Sciences, Elsevier, vol. 88(C), pages 11-15.
    12. Yiding Feng & Jason Hartline & Yingkai Li, 2020. "Simple Mechanisms for Agents with Non-linear Utilities," Papers 2003.00545, arXiv.org, revised Oct 2022.
    13. Burkett, Justin, 2015. "Endogenous budget constraints in auctions," Journal of Economic Theory, Elsevier, vol. 158(PA), pages 1-20.
    14. Kotowski, Maciej H., 2020. "First-price auctions with budget constraints," Theoretical Economics, Econometric Society, vol. 15(1), January.
    15. Chaithanya Bandi & Dimitris Bertsimas, 2014. "Optimal Design for Multi-Item Auctions: A Robust Optimization Approach," Mathematics of Operations Research, INFORMS, vol. 39(4), pages 1012-1038, November.
    16. Pai, Mallesh M. & Vohra, Rakesh, 2014. "Optimal auctions with financially constrained buyers," Journal of Economic Theory, Elsevier, vol. 150(C), pages 383-425.
    17. Baisa, Brian, 2017. "Auction design without quasilinear preferences," Theoretical Economics, Econometric Society, vol. 12(1), January.
    18. Jianxin Rong & Ning Sun & Dazhong Wang, 2019. "A New Evaluation Criterion for Allocation Mechanisms with Application to Vehicle License Allocations in China," The Journal of Mechanism and Institution Design, Society for the Promotion of Mechanism and Institution Design, University of York, vol. 4(1), pages 39-86, November.
    19. Baisa, Brian & Rabinovich, Stanislav, 2016. "Optimal auctions with endogenous budgets," Economics Letters, Elsevier, vol. 141(C), pages 162-165.
    20. Santiago R. Balseiro & Jon Feldman & Vahab Mirrokni & S. Muthukrishnan, 2014. "Yield Optimization of Display Advertising with Ad Exchange," Management Science, INFORMS, vol. 60(12), pages 2886-2907, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:61:y:2015:i:4:p:864-884. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.