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Are Truthful Bidders Paying too Much? Efficiency and Revenue in Display Ad Auctions

Are Truthful Bidders Paying too Much? Efficiency and Revenue in Display Ad Auctions Display ad auctions have become the predominant means to allocate user impressions on a website to advertisers. These auctions are conducted in milliseconds online, whenever a user visits a website. The impressions are typically priced via a simple second-price rule. For single-item auctions, this Vickrey payment rule is known to be incentive-compatible. However, it is unclear whether bidders should still bid truthful in an online auction where impressions (or items) arrive dynamically over time and their valuations are not separable, as is the case with campaign targets or budgets. The allocation process might not maximize welfare and the payments can differ substantially from those paid in an offline auction with a Vickrey-Clarke-Groves (VCG) payment rule or also competitive equilibrium prices. We study the properties of the offline problem and model it as a mathematical program. In numerical experiments, we find that the welfare achieved in the online auction process with truthful bidders is high compared to the theoretical worst-case efficiency, but that the bidders pay significantly more on average compared to what they would need to pay in a corresponding offline auction in thin markets with up to four bidders. However, incentives for bid shading in these second-price auctions decrease quickly with additional competition and bidders risk losing. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png ACM Transactions on Management Information Systems (TMIS) Association for Computing Machinery

Are Truthful Bidders Paying too Much? Efficiency and Revenue in Display Ad Auctions

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Publisher
Association for Computing Machinery
Copyright
Copyright © 2019 ACM
ISSN
2158-656X
eISSN
2158-6578
DOI
10.1145/3325523
Publisher site
See Article on Publisher Site

Abstract

Display ad auctions have become the predominant means to allocate user impressions on a website to advertisers. These auctions are conducted in milliseconds online, whenever a user visits a website. The impressions are typically priced via a simple second-price rule. For single-item auctions, this Vickrey payment rule is known to be incentive-compatible. However, it is unclear whether bidders should still bid truthful in an online auction where impressions (or items) arrive dynamically over time and their valuations are not separable, as is the case with campaign targets or budgets. The allocation process might not maximize welfare and the payments can differ substantially from those paid in an offline auction with a Vickrey-Clarke-Groves (VCG) payment rule or also competitive equilibrium prices. We study the properties of the offline problem and model it as a mathematical program. In numerical experiments, we find that the welfare achieved in the online auction process with truthful bidders is high compared to the theoretical worst-case efficiency, but that the bidders pay significantly more on average compared to what they would need to pay in a corresponding offline auction in thin markets with up to four bidders. However, incentives for bid shading in these second-price auctions decrease quickly with additional competition and bidders risk losing.

Journal

ACM Transactions on Management Information Systems (TMIS)Association for Computing Machinery

Published: Jun 26, 2019

Keywords: Display ad auctions

References