Mechanism Design for Ad Auctions with Display Prices

Abstract

In various applications, ads are displayed together with prices, so as to provide a direct comparison among similar products or services. The price-displaying feature not only influences the consumers’ decision, but also affects the bidding behavior of advertisers. In this paper, we study ad auctions with display prices from the perspective of mechanism design, in which advertisers are asked to submit both the product costs and the display prices of their commodities. We first provide a characterization for all individually rational and incentive-compatible mechanisms in the presence of display prices, then use it to design ad auctions in two scenarios. In the former scenario, the display prices are assumed to be exogenously determined. For this scenario, we derive the welfare-maximizing and revenue-maximizing auctions for any given display price profile. In the latter, advertisers are allowed to strategize their display prices freely. We investigate two families of allocation policies within the scenario and identify the equilibrium display prices accordingly. Our findings demonstrate the impact of display prices on the design of ad auctions, and highlight how platforms can utilize display price information to optimize the performance of ad delivery.