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http://ssrn.com/abstract=2149319
 
 

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Repeated Auctions with Budgets in Ad Exchanges: Approximations and Design


Santiago Balseiro


Duke University - Decision Sciences

Omar Besbes


Columbia Business School - Decision Risk and Operations

Gabriel Y. Weintraub


Columbia University - Columbia Business School - Decision Risk and Operations

March 11, 2014

NET Institute Working Paper No. 12-11
Columbia Business School Research Paper No. 12/55

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 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. 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, computationally tractable, and in some important cases yields a closed-form characterization. We establish that a 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.

Number of Pages in PDF File: 69

Keywords: auction design, revenue management, ad exchange, display advertising, internet, budget constraints, dynamic games, mean field, fluid approximation

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Date posted: September 21, 2012 ; Last revised: June 22, 2014

Suggested Citation

Balseiro, Santiago and Besbes, Omar and Weintraub, Gabriel Y., Repeated Auctions with Budgets in Ad Exchanges: Approximations and Design (March 11, 2014). NET Institute Working Paper No. 12-11; Columbia Business School Research Paper No. 12/55. Available at SSRN: http://ssrn.com/abstract=2149319 or http://dx.doi.org/10.2139/ssrn.2149319

Contact Information

Santiago Balseiro
Duke University - Decision Sciences ( email )
100 Fuqua Drive
Durham, NC 27708-0120
United States
Omar Besbes (Contact Author)
Columbia Business School - Decision Risk and Operations ( email )
New York, NY
United States

Gabriel Y. Weintraub
Columbia University - Columbia Business School - Decision Risk and Operations ( email )
New York, NY
United States

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