EXPRESS: First-Price Auctions in Online Display Advertising

2021 ◽  
pp. 002224372110302
Author(s):  
Stylianos Despotakis ◽  
R. Ravi ◽  
Amin Sayedi
Keyword(s):  
Direct Access ◽  
Bidding Strategy ◽  
Unique Equilibrium ◽  
Old Regime ◽  
Display Advertising ◽  
Optimal Mechanism ◽  
Price Auction ◽  
Auction Format ◽  
Second Price Auctions

We link the rapid and dramatic move from second-price to first-price auction format in the display advertising market to the move from the waterfalling mechanism employed by publishers for soliciting bids in a pre-ordered cascade over exchanges, to an alternate header bidding strategy that broadcasts the request for bid to all exchanges simultaneously. First, we argue that the move by the publishers from waterfalling to header bidding was a revenue improving move for publishers in the old regime when exchanges employed second-price auctions. Given the publisher move to header bidding, we show that exchanges move from second-price to first-price auctions to increase their expected clearing prices. Interestingly, when all exchanges move to first-price auctions, each exchange faces stronger competition from other exchanges and some exchanges may end up with lower revenue than when all exchanges use second-price auctions; yet, all exchanges move to first-price auctions in the unique equilibrium of the game. We show that the new regime hinders the exchanges’ ability to differentiate in equilibrium. Furthermore, it allows the publishers to achieve the revenue of the optimal mechanism despite not having direct access to the advertisers.

scholarly journals Adverse Selection and Auction Design for Internet Display Advertising

2016 ◽  
Vol 106 (10) ◽  
pp. 2852-2866 ◽  
Author(s):  
Nick Arnosti ◽  
Marissa Beck ◽  
Paul Milgrom
Keyword(s):  
Adverse Selection ◽  
Auction Design ◽  
Display Advertising ◽  
Shill Bidding ◽  
Heavy Tailed Distributions ◽  
Price Auction ◽  
Second Price Auction ◽  
Heavy Tailed ◽  
The Cost ◽  
Second Price Auctions

We model an online display advertising environment in which “performance” advertisers can measure the value of individual impressions, whereas “brand” advertisers cannot. If advertiser values for ad opportunities are positively correlated, second-price auctions for impressions can be inefficient and expose brand advertisers to adverse selection. Bayesian-optimal auctions have other drawbacks: they are complex, introduce incentives for false-name bidding, and do not resolve adverse selection. We introduce “modified second bid” auctions as the unique auctions that overcome these disadvantages. When advertiser match values are drawn independently from heavy-tailed distributions, a modified second bid auction captures at least 94.8 percent of the first-best expected value. In that setting and similar ones, the benefits of switching from an ordinary second-price auction to the modified second bid auction may be large, and the cost of defending against shill bidding and adverse selection may be low. (JEL D44, D82, L86, M37)

A Near-Optimal Bidding Strategy for Real-Time Display Advertising Auctions

2020 ◽  
pp. 002224372096854
Author(s):  
Srinivas Tunuguntla ◽  
Paul R. Hoban
Keyword(s):  
Real Time ◽  
Competitive Equilibrium ◽  
Learning Algorithm ◽  
A Priori ◽  
Distribution Channel ◽  
Bidding Strategy ◽  
Display Advertising ◽  
Funding Model ◽  
Algorithmic Solution ◽  
Optimal Bidding

This article introduces a near-optimal bidding algorithm for use in real-time display advertising auctions. These auctions constitute a dominant distribution channel for internet display advertising and a potential funding model for addressable media. The proposed efficient, implementable learning algorithm is proven to rapidly converge to the optimal strategy while achieving zero regret and constituting a competitive equilibrium. This is the first algorithmic solution to the online knapsack problem to offer such theoretical guarantees without assuming a priori knowledge of object values or costs. Furthermore, it meets advertiser requirements by accommodating any valuation metric while satisfying budget constraints. Across a series of 100 simulated and 10 real-world campaigns, the algorithm delivers 98% of the value achievable with perfect foresight and outperforms the best available alternative by 11%. Finally, we show how the algorithm can be augmented to simultaneously estimate impression values and learn the bidding policy. Across a series of simulations, we show that the total regret delivered under this dual objective is less than that from any competing algorithm required only to learn the bidding policy.

Leveling the Playing Field for Risk-Averse Agents in Security-Bid Auctions

2021 ◽  
Author(s):  
Andrés Fioriti ◽  
Allan Hernandez-Chanto
Keyword(s):  
Allocative Efficiency ◽  
Technical Condition ◽  
Risk Averse ◽  
Security Design ◽  
Call Option ◽  
Equilibrium Behavior ◽  
Playing Field ◽  
Price Auction ◽  
Auction Format ◽  
The Relationship

We introduce risk-averse bidders in a security-bid auction to analyze how the security design affects bidders’ equilibrium behavior and, as a result, the revenue and efficiency of the auction. We show that steeper securities provide more insurance because they allow bidders to smooth payoffs across realizations. Such insurance levels the playing field for more-risk-averse bidders, inducing them to bid more aggressively. As a consequence, the auction’s allocative efficiency weakly increases when the seller switches from a flatter to a steeper security. Furthermore, we prove that when bidders are homogeneously and sufficiently risk averse, the only security that guarantees Pareto efficiency is the steepest, that is, a call option. We also determine the relationship between the security design and the auction format. In particular, we show that for convex and superconvex families of securities, the first-price auction yields higher expected revenues, provided a technical condition, whereas for subconvex families, the second price yields higher expected revenues, provided that bidders are moderately risk averse. Finally, we show that steeper securities also attract higher entry from an ex ante perspective, when entry is costly, and discuss the effects that the presence of risk aversion has on informal auctions. This paper was accepted by Gustavo Manso, finance.

scholarly journals Asymmetric Auctions with Resale

2008 ◽  
Vol 98 (1) ◽  
pp. 87-112 ◽  
Author(s):  
Isa Hafalir ◽  
Vijay Krishna
Keyword(s):  
Asymmetric Auctions ◽  
Monopoly Pricing ◽  
General Revenue ◽  
Private Values ◽  
Price Auction ◽  
Second Price Auction ◽  
Expected Revenue ◽  
Second Price Auctions ◽  
Independent Private Values

We study first- and second-price auctions with resale in a model with independent private values. With asymmetric bidders, the resulting inefficiencies create a motive for post-auction trade which, in our model, takes place via monopoly pricing—the winner makes a take-it-or-leave-it offer to the loser. We show (a) a first-price auction with resale has a unique monotonic equilibrium; and (b) with resale, the expected revenue from a first-price auction exceeds that from a second-price auction. The inclusion of resale possibilities thus permits a general revenue ranking of the two auctions that is not available when these are excluded. (JEL D44)

scholarly journals COLLUSION OR SNIPING IN SIMULTANEOUS ASCENDING AUCTIONS — A PRISONER'S DILEMMA

2011 ◽  
Vol 13 (01) ◽  
pp. 75-82
Author(s):  
SASCHA FÜLLBRUNN
Keyword(s):  
Prisoner's Dilemma ◽  
Prisoner’S Dilemma ◽  
Ascending Auctions ◽  
Heterogeneous Goods ◽  
Price Auction ◽  
Auction Format

In simultaneous ascending price auctions with heterogeneous goods Brusco and Lopomo [2002] derive collusive equilibria, where bidders divide objects among themselves, while keeping the prices low. Considering a simultaneous ascending price auction with a fixed deadline, i.e. the hard close auction format, a prisoner's dilemma situation results and collusive equilibria do not longer exist, even for only two bidders. Hence, we introduce a further reason for sniping behavior in Hard Close auctions, i.e. to appear to collude early in the auction and to defect at the very last moment.

scholarly journals Entry Deterrence in Dynamic Second-Price Auctions

2016 ◽  
Vol 8 (2) ◽  
pp. 168-201
Author(s):  
Xiaogang Che ◽  
Tilman Klumpp
Keyword(s):  
Social Welfare ◽  
Entry Deterrence ◽  
Private Values ◽  
Price Auction ◽  
Second Price Auction ◽  
Second Price Auctions ◽  
Independent Private Values

We examine a dynamic second-price auction with independent private values and sequential costly entry. We show that delayed revelation equilibria exist in which some buyers place coordinated low early bids. These buyers revise their bids to reflect their true valuations just prior to the end of the auction. Compared to the benchmark immediate revelation equilibrium, in which buyers bid their valuations immediately after entry, fewer high-value bidders enter on expectation in the delayed revelation equilibria. Delayed revelation of buyer values decreases social welfare, but is necessary for bidders to have a strict participation incentive. (JEL D44, D82, D83)

scholarly journals Using Field Experiments to Test Equivalence Between Auction Formats: Magic on the Internet

1999 ◽  
Vol 89 (5) ◽  
pp. 1063-1080 ◽  
Author(s):  
David Lucking-Reiley
Keyword(s):  
Theoretical Prediction ◽  
Field Experiments ◽  
The Internet ◽  
English Auctions ◽  
Dutch Auction ◽  
Sealed Bid ◽  
Laboratory Results ◽  
Price Auction ◽  
Auction Format ◽  
Auction Formats

William Vickrey's predicted equivalences between first-price sealed-bid and Dutch auctions, and between second-price sealed-bid and English auctions, are tested using field experiments that auctioned off collectible trading cards over the Internet. The results indicate that the Dutch auction produces 30-percent higher revenues than the first-price auction format, a violation of the theoretical prediction and a reversal of previous laboratory results, and that the English and second-price formats produce roughly equivalent revenues. (JEL C93, D44)

scholarly journals Real-time Bidding for Time Constrained Impression Contracts in First and Second Price Auctions - Theory and Algorithms

2021 ◽  
Vol 5 (3) ◽  
pp. 1-37
Author(s):  
Ryan J. Kinnear ◽  
Ravi R. Mazumdar ◽  
Peter Marbach
Keyword(s):  
Real Time ◽  
Optimization Problem ◽  
Optimal Solution ◽  
Piecewise Constant Function ◽  
Convex Optimization Problem ◽  
Piecewise Constant ◽  
Infinite Dimensional ◽  
Optimal Behavior ◽  
Price Auction ◽  
Second Price Auctions

We study the optimal bids and allocations in a real-time auction for heterogeneous items subject to the requirement that specified collections of items of given types be acquired within given time constraints. The problem is cast as a continuous time optimization problem that can, under certain weak assumptions, be reduced to a convex optimization problem. Focusing on the standard first and second price auctions, we first show, using convex duality, that the optimal (infinite dimensional) bidding policy can be represented by a single finite vector of so-called ''pseudo-bids''. Using this result we are able to show that the optimal solution in the second price case turns out to be a very simple piecewise constant function of time. This contrasts with the first price case that is more complicated. Despite the fact that the optimal solution for the first price auction is genuinely dynamic, we show that there remains a close connection between the two cases and that, empirically, there is almost no difference between optimal behavior in either setting. This suggests that it is adequate to bid in a first price auction as if it were in fact second price. Finally, we detail methods for implementing our bidding policies in practice with further numerical simulations illustrating the performance.

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