Cost-Per-Impression Pricing for Display Advertising

Fridgeirsdottir, Kristin; Asadolahi, Sami Najafi

doi:10.2139/ssrn.2355835

Cited by 2 publications

(1 citation statement)

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“…Specifically, we take the following steps: (i) We obtain the "optimal" CPM price p * cpm and the optimal advertisers' arrival rate of the equivalent CPM system * cpm . To find these two values, we apply the steady-state probability of the number of advertisers in a CPM system (Fridgeirsdottir and Najafi-Asadolahi 2013) as follows:…”

Section: The Simple Conversion Rulementioning

confidence: 99%

Cost-per-Click Pricing for Display Advertising

Najafi-Asadolahi

Fridgeirsdottir

2014

M&SOM

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D isplay advertising is a $25 billion business with a promising upward revenue trend. In this paper, we consider an online display advertising setting in which a web publisher posts display ads on its website and charges based on the cost-per-click pricing scheme while promising to deliver a certain number of clicks to the ads posted. The publisher is faced with uncertain demand for advertising slots and uncertain traffic to its website as well as uncertain click behavior of visitors. We formulate the problem as a novel queueing system, where the slots correspond to service channels with the service rate of each server inversely related to the number of active servers. We obtain the closed-form solution for the steady-state probabilities of the number of ads in the publisher's system. We determine the publisher's optimal price to charge per click and show that it can increase in the number of advertising slots and the number of promised clicks. We show that the common heuristic used by many web publishers to convert between the cost-per-click and cost-per-impression pricing schemes using the so-called click-through-rate can be misleading because it may incur substantial revenue loss to web publishers. We provide an alternative explanation for the phenomenon observed by several publishers that the click-through-rate tends to drop when they switch from the cost-per-click to cost-per-impression pricing scheme.

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Section: The Simple Conversion Rulementioning

confidence: 99%