Skip to main content
SpringerLink
Log in

Intermediation in Online Advertising

  • Chapter
  • First Online:
Sharing Economy

Part of the book series: Springer Series in Supply Chain Management ((SSSCM,volume 6))

Abstract

In online advertising, impressions are sold via real-time auctions which are organized by central platforms referred to as ad exchanges. For technological or operational reasons, advertisers generally participate in the auctions run by exchanges through intermediaries which acquire impressions on their behalf. Intermediaries are specialized entities that provide targeted services for a particular segment of the market, and typically there are multiple stages of intermediation. Moreover, an advertiser may have private information, e.g., budget, targeting criterion or value attributed to an impression. The presence of intermediaries and this information asymmetry introduce several new research questions. In the first part of this chapter, we study the mechanism design problem of an intermediary who offers a contract to an advertiser with a private budget and a private targeting criterion. We characterize the optimal mechanism and establish that the presence of the intermediary results in simpler bidding policies. In the second part of this chapter, we study the strategic interaction among intermediaries organized in a chain network. We characterize a subgame perfect equilibrium of the resulting game among intermediaries and show that the most profitable position in the intermediation chain depends on the underlying value distribution of the advertiser.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 169.00
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Hardcover Book
USD 219.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Notes

  1. 1.

    Random number of impressions can be accommodated in our model by considering dummy arrivals that are valued at zero by the advertiser.

  2. 2.

    Unlike the advertiser, the intermediary does not have stringent financial constraints, thus we do not restrict the intermediary’s policies \(\zeta \in \mathcal Z\) to satisfy any budget constraints (unlike the set of policies \(\mathcal {Z}_t\) that can be employed by the advertiser of type t).

  3. 3.

    Specifically, the intermediary can prevent the advertiser from overstating her budget by requiring her to make an upfront payment equal to the reported budget, and returning the amount b t − x t at the end of the advertising campaign (see, e.g., Che and Gale 2000).

  4. 4.

    Note that in the OCI model we denote by v t(α) the value of a type t advertiser for an impression with attributes α, thus the notation v t represents a function. However, in the MSI model, the notation v represents a random variable which captures the value of the advertiser.

  5. 5.

    The advertiser’s value v satisfies these requirements.

  6. 6.

    Note that ϕ X(x) = ϕ X|X>0(x) for \(x\in {\mathcal X}\setminus \{0\}\). This can be seen by using the definition of the virtual value function and noting that the conditional random variable X|X > 0 has c.d.f. G X|X>0(x) = (G X(x) − G X(0))∕(1 − G X(0)), and p.d.f. g X|X>0(x) = g X(x)∕(1 − G X(0)). Thus, focusing on the virtual value of X|X > 0 as opposed to X, excludes the atom at zero, without impacting the (projected) virtual values elsewhere.

  7. 7.

    Balseiro et al. (2017) show that this assumption holds for Generalized Pareto Distributions, a large family of distributions including uniform, exponential and Pareto distributions.

References

  • Balseiro SR, Candogan O (2017) Optimal contracts for intermediaries in online advertising. Oper Res 65(4):878–896

    Article  Google Scholar 

  • Balseiro SR, Besbes O, Weintraub GY (2015) Repeated auctions with budgets in ad exchanges: approximations and design. Manag Sci 61(4):864–884

    Article  Google Scholar 

  • Balseiro SR, Candogan O, Gurkan H (2017) Multi-stage intermediation in display advertising, Working paper

    Google Scholar 

  • Belavina E, Girotra K (2012) The relational advantages of intermediation. Manag Sci 58(9):1614–1631

    Article  Google Scholar 

  • Bhattacharya S, Goel G, Gollapudi S, Munagala K (2010) Budget constrained auctions with heterogeneous items. In: Proceedings of the 42Nd ACM symposium on theory of computing, STOC’10. ACM, New York, pp 379–388

    Google Scholar 

  • Borgs C, Chayes J, Immorlica N, Mahdian M, Saberi A (2005) Multi-unit auctions with budget-constrained bidders. In: Proceedings of the 6th ACM conference on electronic commerce, EC’05. ACM, New York, pp 44–51

    Chapter  Google Scholar 

  • Bresnahan TF, Reiss PC (1985) Dealer and manufacturer margins. RAND J Econ 16:253–268

    Article  Google Scholar 

  • Brusco S, Lopomo G (2008) Budget constraints and demand reduction in simultaneous ascending-bid auctions. J Ind Econ 56(1):113–142

    Article  Google Scholar 

  • Brusco S, Lopomo G (2009) Simultaneous ascending auctions with complementarities and known budget constraints. Econ Theory 38(1):105–124

    Article  Google Scholar 

  • Chawla S, Malec DL, Malekian A (2011) Bayesian mechanism design for budget-constrained agents. In: Proceedings of the 12th ACM conference on electronic commerce, EC’11. ACM, New York, pp 253–262

    Chapter  Google Scholar 

  • Che YK, Gale I (1998) Standard auctions with financially constrained bidders. Rev Econ Stud 65(1):1–21

    Article  Google Scholar 

  • Che YK, Gale I (2000) The optimal mechanism for selling to a budget-constrained buyer. J Econ Theory 92(2):198–233

    Article  Google Scholar 

  • Condorelli D, Galeotti A (2016) Strategic models of intermediation networks. In: Bramoulle Y, Galeotti A, Rogers BW (eds) The Oxford handbook of the economics of networks. Oxford University Press, New York

    Google Scholar 

  • Feldman J, Mirrokni V, Muthukrishnan S, Pai MM (2010) Auctions with intermediaries: extended abstract. In: Proceedings of the 11th ACM conference on electronic commerce, EC’10. ACM, New York, pp 23–32

    Google Scholar 

  • Ghosh A, Rubinstein BI, Vassilvitskii S, Zinkevich M (2009) Adaptive bidding for display advertising. In: Proceedings of the 18th international conference on World Wide Web, WWW’09. ACM, New York, pp 251–260

    Chapter  Google Scholar 

  • Gummadi R, Key PB, Proutiere A (2011) Optimal bidding strategies in dynamic auctions with budget constraints. In: 49th annual Allerton conference on communication, control, and computing (Allerton). IEEE, Piscataway, p 588

    Google Scholar 

  • Internet Advertising Bureau (2016) Internet advertising revenue report, 2016 full year results. PricewaterhouseCoopers. Technical report. Available at https://www.iab.com/wp-content/uploads/2016/04/IAB_Internet_Advertising_Revenue_Report_FY_2016.pdf. Accessed 6 Mar 2018

    Google Scholar 

  • Iyer K, Johari R, Sundararajan M (2014) Mean field equilibria of dynamic auctions with learning. Manag Sci 60(12):2949–2970

    Article  Google Scholar 

  • Jiang C, Beck CL, Srikant R (2014) Bidding with limited statistical knowledge in online auctions. SIGMETRICS Perform Eval Rev 41(4):38–41

    Article  Google Scholar 

  • Laffont JJ, Robert J (1996) Optimal auction with financially constrained buyers. Econ Lett 52(2):181–186

    Article  Google Scholar 

  • Lariviere MA, Porteus EL (2001) Selling to the newsvendor: an analysis of price-only contracts. Manuf Serv Oper Manag 3(4):293–305

    Article  Google Scholar 

  • Loertscher S, Niedermayer A (2007) When is seller price setting with linear fees optimal for intermediaries? Technical report, Department of Economics, Universität Bern, Discussion papers

    Google Scholar 

  • Loertscher S, Niedermayer AF (2012) Fee-setting mechanisms: on optimal pricing by intermediaries and indirect taxation. Available at SSRN 2172386

    Google Scholar 

  • Manea M (2018) Intermediation and resale in networks. J Polit Econ 126(3):1250–1301

    Article  Google Scholar 

  • Mansour Y, Muthukrishnan S, Nisan N (2012) Doubleclick ad exchange auction. https://arxiv.org/pdf/1204.0535v1.pdf

  • Maskin ES (2000) Auctions, development, and privatization: efficient auctions with liquidity-constrained buyers. Eur Econ Rev 44(4–6):667–681

    Article  Google Scholar 

  • Myerson RB, Satterthwaite MA (1983) Efficient mechanisms for bilateral trading. J Econ Theory 29(2):265–281

    Article  Google Scholar 

  • Nguyen T, Subramanian V, Berry R (2016) Delay in trade networks. Oper Res 64(3):646–661

    Article  Google Scholar 

  • Niazadeh R, Yuan Y, Kleinberg R (2014) Simple and near-optimal mechanisms for market intermediation. In: Web and Internet economics. Springer, Cham, pp 386–399

    Google Scholar 

  • Pai MM, Vohra R (2014) Optimal auctions with financially constrained bidders. J Econ Theory 150(0):383–425

    Article  Google Scholar 

  • Perakis G, Roels G (2007) The price of anarchy in supply chains: quantifying the efficiency of price-only contracts. Manag Sci 53(8):1249–1268

    Article  Google Scholar 

  • Stavrogiannis LC, Gerding EH, Polukarov M (2013) Competing intermediary auctions. In: Proceedings of the 2013 international conference on autonomous agents and multi-agent systems, St. Paul, pp 667–674

    Google Scholar 

  • Tirole J (1988) The theory of industrial organization, 1st edn. The MIT Press, Cambridge/London

    Google Scholar 

  • Wu SD (2004) Supply chain intermediation: a bargaining theoretic framework. In: Simchi-Levi D, Wu SD, Shen Z-J (eds) Handbook of quantitative supply chain analysis. Springer, New York, pp 67–115

    Chapter  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Columbia University, New York, NY, USA

    Santiago R. Balseiro

  2. University of Chicago, Chicago, IL, USA

    Ozan Candogan

  3. Duke University, Durham, NC, USA

    Huseyin Gurkan

Authors
  1. Santiago R. Balseiro
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Ozan Candogan
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Huseyin Gurkan
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Santiago R. Balseiro .

Editor information

Editors and Affiliations

  1. Rotman School of Management, University of Toronto, Toronto, ON, Canada

    Ming Hu

Rights and permissions

Reprints and permissions

Copyright information

© 2019 Springer Nature Switzerland AG

About this chapter

Check for updates. Verify currency and authenticity via CrossMark

Cite this chapter

Balseiro, S.R., Candogan, O., Gurkan, H. (2019). Intermediation in Online Advertising. In: Hu, M. (eds) Sharing Economy. Springer Series in Supply Chain Management, vol 6. Springer, Cham. https://doi.org/10.1007/978-3-030-01863-4_21

Download citation

Publish with us

Policies and ethics

Search

Navigation