Open and Private Exchanges in Display Advertising

W. Jason Choi () and Amin Sayedi ()
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W. Jason Choi: Smith School of Business, University of Maryland, College Park, Maryland 20742
Amin Sayedi: Foster School of Business, University of Washington, Seattle, Washington 98195

Marketing Science, 2023, vol. 42, issue 3, 451-475

Abstract: We study the impact of the emergence of private exchanges (PX) on the display advertising market. Unlike open exchanges (OX), the original exchange types that are open to all publishers and advertisers, the newly emerged PX is only available to a smaller set of prescreened advertisers and publishers through an invite-only process. The OX exposes advertisers to ad fraud and brand safety risks, whereas the PX ensures that advertisers purchase high-quality impressions from reputable publishers. Although the assurance of higher quality increases advertisers’ valuation for the PX impressions, we find that selling through both the OX and PX can hurt publishers by creating an information asymmetry among advertisers. In equilibrium, the publisher may sell through the OX, PX, or both depending on the baseline fraud intensity and the advertisers’ average valuations. Finally, our model sheds light on the OX’s incentive to fight fraud. In the absence of the PX, the OX has low incentive to combat fraud because it earns commission from fraudulent transactions. However, the introduction of the PX may create competitive pressure such that the OX screens fake impressions (i.e., the PX may induce the market to self-regulate).

Keywords: display advertising; real-time bidding; first-price auction; private exchange; open exchange; advertising fraud (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormksc:v:42:y:2023:i:3:p:451-475

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