Dynamic Revenue Sharing

20 Pages Posted: 25 Apr 2017

See all articles by Santiago Balseiro

Santiago Balseiro

Columbia Business School - Decision Risk and Operations

Max Lin

Google Inc.

Vahab Mirrokni

Google Inc.

Renato Paes Leme

Google Inc.

Song Zuo

Google Inc., New York

Date Written: April 21, 2017

Abstract

Many online platforms act as intermediaries between a seller and a set of buyers. Examples of such settings include online retailers (such as Ebay) selling items on behalf of sellers to buyers, or advertising exchanges (such as AdX) selling pageviews on behalf of publishers to advertisers. In such settings, revenue sharing is a central part of running such a marketplace for the intermediary, and fixed-percentage revenue sharing schemes are often used to split the revenue among the platform and the sellers. In particular, such revenue sharing schemes require the platform to (i) take at most a constant fraction α of the revenue from auctions and (ii) pay the seller at least the seller declared opportunity cost c for each item sold. A straightforward way to satisfy the constraints is to set a reserve price at c/(1 − α) for each item, but it is not the optimal solution on maximizing the profit of the intermediary.

While previous studies (by Mirrokni and Gomes, and by Niazadeh et al) focused on revenue sharing schemes in static double auctions, in this paper, we take advantage of the repeated nature of the auctions. In particular, we introduce dynamic revenue sharing schemes where we balance the two constraints over different auctions to achieve higher profit and seller revenue. This is directly motivated by the practice of advertising exchanges where the fixed-percentage revenue-share should be met across all auctions and not in each auction. In this paper, we characterize the optimal revenue sharing scheme that satisfies both constraints in expectation. Finally, we empirically evaluate our revenue sharing scheme on real data.

Keywords: Dynamic Revenue Sharing, Internet Advertising, Revenue Sharing, Ad Exchanges, Two-sided Markets

JEL Classification: D44, C73 ,D82

Suggested Citation

Balseiro, Santiago and Lin, Max and Mirrokni, Vahab and Paes Leme, Renato and Zuo, Song, Dynamic Revenue Sharing (April 21, 2017). Available at SSRN: https://ssrn.com/abstract=2956715 or http://dx.doi.org/10.2139/ssrn.2956715

Santiago Balseiro

Columbia Business School - Decision Risk and Operations ( email )

3022 Broadway
New York, NY 10027
United States

Max Lin

Google Inc. ( email )

Vahab Mirrokni

Google Inc. ( email )

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

Renato Paes Leme

Google Inc. ( email )

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

Song Zuo (Contact Author)

Google Inc., New York ( email )

111 8th Ave
New York, NY 10011
United States

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