Adverse Selection and Auction Design for Internet Display Advertising

Nick Arnosti, Marissa Beck and Paul Milgrom

American Economic Review, 2016, vol. 106, issue 10, 2852-66

Abstract: We model an online display advertising environment in which "performance" advertisers can measure the value of individual impressions, whereas "brand" advertisers cannot. If advertiser values for ad opportunities are positively correlated, second-price auctions for impressions can be inefficient and expose brand advertisers to adverse selection. Bayesian-optimal auctions have other drawbacks: they are complex, introduce incentives for false-name bidding, and do not resolve adverse selection. We introduce "modified second bid" auctions as the unique auctions that overcome these disadvantages. When advertiser match values are drawn independently from heavy-tailed distributions, a modified second bid auction captures at least 94.8 percent of the first-best expected value. In that setting and similar ones, the benefits of switching from an ordinary second-price auction to the modified second bid auction may be large, and the cost of defending against shill bidding and adverse selection may be low.

JEL-codes: D44 D82 L86 M37 (search for similar items in EconPapers)
Date: 2016
Note: DOI: 10.1257/aer.20141198
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

Downloads: (external link)
https://www.aeaweb.org/articles?id=10.1257/aer.20141198 (application/pdf)
https://www.aeaweb.org/articles/attachments?retrie ... g1EHq8p-A8pAljoi4HnQ (application/pdf)
https://www.aeaweb.org/articles/attachments?retrie ... PN-hKQjdO40u9oiG_5nU (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aecrev:v:106:y:2016:i:10:p:2852-66

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

Access Statistics for this article

American Economic Review is currently edited by Esther Duflo

More articles in American Economic Review from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().