Budget Management Strategies in Repeated Auctions

87 Pages Posted: 26 Oct 2016 Last revised: 13 Jul 2018

See all articles by Santiago Balseiro

Santiago Balseiro

Columbia Business School - Decision Risk and Operations

Anthony Kim

Columbia Business School - Decision Risk and Operations

Mohammad Mahdian

Google Inc.

Vahab Mirrokni

Google Inc.

Date Written: November 9, 2016

Abstract

In online advertising, advertisers purchase ad placements by participating in a long sequence of repeated auctions. One of the most important features advertising platforms often provide, and advertisers often use, is budget management, which allows advertisers to control their cumulative expenditures. Advertisers typically declare the maximum daily amount they are willing to pay, and the platform adjusts allocations and payments to guarantee that cumulative expenditures do not exceed budgets. There are multiple ways to achieve this goal, and each one, when applied to all budget-constrained advertisers simultaneously, pushes the system toward a different equilibrium. While previous research focused on online stochastic optimization techniques or game-theoretic equilibria of such settings, our goal in this paper is to compare the “system equilibria” of a range of budget management strategies in terms of the seller’s revenue, buyers’ utility and overall welfare. In particular, we consider six different budget management strategies including probabilistic throttling, thresholding, bid shading, reserve pricing, and multiplicative boosting. We show these methods admit a system equilibrium in a rather general setting, and prove dominance relations between them in a somewhat simplified setting. Our study sheds light on the impact of budget management strategies on the tradeoff between the seller’s revenue and buyers’ utility. Finally, we also empirically compare the system equilibria of these strategies using real ad auction data in sponsored search, as well as randomly generated bids. The empirical study confirms our theoretical findings about the relative performances of these budget management strategies in the simplified setting.

Keywords: Repeated Auctions, Internet Advertising, Budget Constraints

Suggested Citation

Balseiro, Santiago and Kim, Anthony and Mahdian, Mohammad and Mirrokni, Vahab, Budget Management Strategies in Repeated Auctions (November 9, 2016). Available at SSRN: https://ssrn.com/abstract=2858261 or http://dx.doi.org/10.2139/ssrn.2858261

Santiago Balseiro (Contact Author)

Columbia Business School - Decision Risk and Operations ( email )

3022 Broadway
New York, NY 10027
United States

Anthony Kim

Columbia Business School - Decision Risk and Operations ( email )

New York, NY
United States

Mohammad Mahdian

Google Inc. ( email )

1600 Amphitheatre Parkway
Second Floor
Mountain View, CA 94043
United States

Vahab Mirrokni

Google Inc. ( email )

1600 Amphitheatre Parkway
Second Floor
Mountain View, CA 94043
United States

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