An economic analysis of maximally representative allocations

Jinjie Zhu and Shulin Liu

Applied Economics, 2022, vol. 54, issue 59, 6744-6754

Abstract: Within online advertising, there has been remarkable growth in display advertising. Our study focuses on the publisher’s allocation of its targeted advertising inventory – to this end, we employ the Hotelling model and use maximally representative allocation in our calculations. We then determine the supremum and infimum prices of a guaranteed contract allocated to advertisers. Rather significantly, our model provides a hybrid channel strategy for a publisher that allows the traditional method of targeted advertising and real-time bidding to coexist. We thus demonstrate the difference in each strategy’s outcome. The study reveals that the revenue of the publisher increases when it employs a hybrid channel strategy. Further, advertisers can bid for real-time bidding impressions in pursuit of high user conversion and simultaneously purchase a guaranteed contract in advance to reduce risk under conditions of sufficient funding.

Date: 2022
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DOI: 10.1080/00036846.2022.2082370

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