Repeated Auctions with Budgets in Ad Exchanges: Approximations and Design
Duke University - Decision Sciences
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
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 approximationworking papers series
Date posted: September 21, 2012 ; Last revised: June 22, 2014
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