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Examining the Effect of Small Businesses on Ad Inventory Prices

According to adage.com, ad inventory prices have been consistently falling for years. Ad age attributes this decline to the rapidly increasing amount of ad inventory with relatively constant demand. The author of this article implies that these trends lower the value each potential buyer places on a given ad slot. The author then details how ad exchanges have erroneously tried to combat these lower prices by attracting large advertisers. However, theses large advertisers can take advantage of the GSP auction offered by most ad exchanges, such as Google, to bid below their true value and thus keep prices low. The author argues that smaller business, which are likely to place low bids anyway, will help stabilize prices.

 

As discussed in class, most internet ad space is sold through generalized second price (GSP) auction. The crux of the argument for small business participation is that the GSP auction does not always require truthful bidding. So large business will bid lower than their true values and sellers will be forced to have lower prices. However, small business could set a higher price floor by competing for medium and low value ad slots. This competition would force the larger companies to pay slightly higher prices for the slots they get. Additionally,  the small businesses would receive benefits from participation by advertising more efficiently than through costly, traditional ad campaigns. This mutually beneficial solution would then improve the situation of both small businesses and ad space sellers.

 

References:

http://adage.com/article/digitalnext/raise-online-ad-inventory-prices-small-advertisers/234878/

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