The internet advertising market is a multibillion dollar industry in which advertisers buy thousands of ad placements every day by repeatedly participating in auctions. An important and ubiquitous feature of these auctions is the presence of campaign budgets, which specify the maximum amount the advertisers are willing to pay over a specified time period. In this paper, we present a new model to study the equilibrium bidding strategies in standard auctions, a large class of auctions that includes first and second price auctions, for advertisers who satisfy budget constraints on average. Our model dispenses with the common yet unrealistic assumption that advertisers’ values are independent and instead assumes a contextual model in which advertisers determine their values using a common feature vector. We show the existence of a natural value pacing–based Bayes–Nash equilibrium under very mild assumptions. Furthermore, we prove a revenue equivalence showing that all standard auctions yield the same revenue even in the presence of budget constraints. Leveraging this equivalence, we prove price of anarchy bounds for liquid welfare and structural properties of pacing-based equilibria that hold for all standard auctions. In recent years, the internet advertising market has adopted first price auctions as the preferred paradigm for selling advertising slots. Our work, thus, takes an important step toward understanding the implications of the shift to first price auctions in internet advertising markets by studying how the choice of the selling mechanism impacts revenues, welfare, and advertisers’ bidding strategies. This paper was accepted by Itai Ashlagi, revenue management and market analytics. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2023.4719 .
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Untangling Header Bidding Lore
Header bidding (HB) is a relatively new online advertising technology that allows a content publisher to conduct a client-side (i.e., from within the end-user’s browser), real-time auction for selling ad slots on a web page. We developed a new browser extension for Chrome and Firefox to observe this in-browser auction process from the user’s perspective. We use real end-user measurements from 393,400 HB auctions to (a) quantify the ad revenue from HB auctions, (b) estimate latency overheads when integrating with ad exchanges and discuss their implications for ad revenue, and (c) break down the time spent in soliciting bids from ad exchanges into various factors and highlight areas for improvement. For the users in our study, we find that HB increases ad revenue for web sites by 28% compared to that in real-time bidding as reported in a prior work. We also find that the latency overheads in HB can be easily reduced or eliminated and outline a few solutions, and pitch the HB platform as an opportunity for privacy-preserving advertising.
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- PAR ID:
- 10170744
- Date Published:
- Journal Name:
- Passive and Active Measurement
- Format(s):
- Medium: X
- Sponsoring Org:
- National Science Foundation
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This paper introduces Ibex, an advertising system that reduces the amount of data that is collected on users while still allowing advertisers to bid on real-time ad auctions and measure the effectiveness of their ad campaigns. Specifically, Ibex addresses an issue in recent proposals such as Google’s Privacy Sandbox Topics API in which browsers send information about topics that are of interest to a user to advertisers and demand-side platforms (DSPs). DSPs use this information to (1) determine how much to bid on the auction for a user who is interested in particular topics, and (2) measure how well their ad campaign does for a given audience (i.e., measure conversions). While Topics and related proposals reduce the amount of user information that is exposed, they still reveal user preferences. In Ibex, browsers send user information in an encrypted form that still allows DSPs and advertisers to measure conversions, compute aggregate statistics such as histograms about users and their interests, and obliviously bid on auctions without learning for whom they are bidding. Our implementation of Ibex shows that creating histograms is 1.7–2.5× more expensive for browsers than disclosing user information, and Ibex’s oblivious bidding protocol can finish auctions within 550 ms. We think this makes Ibex capable of preserving a good experience while improving user privacy.more » « less
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Mature internet advertising platforms offer high-level campaign management tools to help advertisers run their campaigns, often abstracting away the intricacies of how each ad is placed and focusing on aggregate metrics of interest to advertisers. On such platforms, advertisers often participate in auctions through a proxy bidder, so the standard incentive analyses that are common in the literature do not apply directly. In this paper, we take the perspective of a budget management system that surfaces aggregated incentives—instead of individual auctions—and compare first and second price auctions. We show that theory offers surprising endorsement for using a first price auction to sell individual impressions. In particular, first price auctions guarantee uniqueness of the steady-state equilibrium of the budget management system, monotonicity, and other desirable properties, as well as efficient computation through the solution to the well-studied Eisenberg–Gale convex program. Contrary to what one can expect from first price auctions, we show that incentives issues are not a barrier that undermines the system. Using realistic instances generated from data collected at real-world auction platforms, we show that bidders have small regret with respect to their optimal ex post strategy, and they do not have a big incentive to misreport when they can influence equilibria directly by giving inputs strategically. Finally, budget-constrained bidders, who have significant prevalence in real-world platforms, tend to have smaller regrets. Our computations indicate that bidder budgets, pacing multipliers, and regrets all have a positive association in statistical terms. This paper was accepted by Gabriel Weintraub, revenue management and market analytics. Funding: D. Panigrahi was supported in part by the National Science Foundation [Awards CCF 1535972, CCF 1750140, and CCF 1955703]. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2022.4310 .more » « less
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Large fractions of online advertisements are sold via repeated second-price auctions. In these auctions, the reserve price is the main tool for the auctioneer to boost revenues. In this work, we investigate the following question: how can the auctioneer optimize reserve prices by learning from the previous bids while accounting for the long-term incentives and strategic behavior of the bidders? To this end, we consider a seller who repeatedly sells ex ante identical items via a second-price auction. Buyers’ valuations for each item are drawn independently and identically from a distribution F that is unknown to the seller. We find that if the seller attempts to dynamically update a common reserve price based on the bidding history, this creates an incentive for buyers to shade their bids, which can hurt revenue. When there is more than one buyer, incentive compatibility can be restored by using personalized reserve prices, where the personal reserve price for each buyer is set using the historical bids of other buyers. Such a mechanism asymptotically achieves the expected revenue obtained under the static Myerson optimal auction for F. Further, if valuation distributions differ across bidders, the loss relative to the Myerson benchmark is only quadratic in the size of such differences. We extend our results to a contextual setting where the valuations of the buyers depend on observed features of the items. When up-front fees are permitted, we show how the seller can determine such payments based on the bids of others to obtain an approximately incentive-compatible mechanism that extracts nearly all the surplus.more » « less
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- Free Publicly Accessible Full Text
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Accepted Manuscript1.0
- Conference Paper:
- https://doi.org/10.1007/978-3-030-44081-7_17
