Auctions in the Online Display Advertising Chain: A Case for Independent Campaign Management

57 Pages Posted: 19 May 2017 Last revised: 13 Jun 2017

See all articles by Amine Allouah

Amine Allouah

Columbia University - Columbia Business School

Omar Besbes

Columbia Business School - Decision Risk and Operations

Date Written: June 5, 2017

Abstract

In many auctions, buyers are represented by an intermediary that manages their bidding process, along with that of other buyers. Notably, this is prevalent in the real-time online display advertising market, in which advertisers bid for impressions through intermediaries called demand side platforms (DSPs). In turn, intermediaries, when bidding on behalf of their customers, strategize to maximize some internal objective and may only submit a single bid to limit competition on a given item. In the present paper, we propose a framework to analyze the implications of such a campaign coordination role by DSPs, taking as a benchmark the case in which each DSP would manage the bidding process of each advertiser it represents independently of other buyers, a case we refer to as multi-bidding. We show that the adoption of multi-bidding by all intermediaries would lead to an increase in both the social welfare and the seller's revenues. Furthermore, we analyze the impact on buyers in two regimes: i.) without competition among intermediaries and ii.) with competition, with a large number of intermediaries and buyers in an appropriate asymptotic regime. Quite remarkably, we establish that multi-bidding would also lead to an increase in the buyers' side surplus under a very broad set of market characteristics. In particular, as long as the average number of buyers interested in an item is moderate and the coefficient of variation of buyers' values is not too small, moving from coordinated campaigns to multi-bidding leads to a Pareto improvement in the value chain.

Keywords: Auction Design, Revenue Management, Value Chain, Intermediaries, Internet Display Advertising, Demand Side Platforms, Collusion

Suggested Citation

Allouah, Amine and Besbes, Omar, Auctions in the Online Display Advertising Chain: A Case for Independent Campaign Management (June 5, 2017). Columbia Business School Research Paper No. 17-60. Available at SSRN: https://ssrn.com/abstract=2919665 or http://dx.doi.org/10.2139/ssrn.2919665

Amine Allouah

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Omar Besbes (Contact Author)

Columbia Business School - Decision Risk and Operations ( email )

New York, NY
United States

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