Interactive Advertising: The Case of Skippable Ads

Dukes, Anthony J.; Liu, Qihong; Shuai, Jie

doi:10.2139/ssrn.3169629

Cited by 4 publications

(1 citation statement)

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“…Berman (2018) explores the effects of advertisers' attribution models on their bidding behavior and their profits. Despotakis, Ravi, and Srinivasan (2021) and Gritckevich, Katona, and Sarvary (2018) look at how ad blockers affect the online advertising ecosystem, and Dukes, Liu, and Shuai (2019) show how skippable ads affect publishers' and advertisers' strategies as well as their profits. Kuksov, Prasad, and Zia (2017) study firms' incentives in hosting the display ads of their competitors on their websites.…”

Section: Related Literaturementioning

confidence: 99%

First-Price Auctions in Online Display Advertising

Despotakis¹,

Ravi²,

Sayedi³

2021

Journal of Marketing Research

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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.

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