Key Factors Ad Publishers and Marketers Should Keep In Mind During Online Advertising Exchanges
Recent academic research on the trustworthiness of first-price auctions was conducted by Shengwu Li, Ph.D., and Mohammad Akbarpour, who are both assistant professors of economics at Harvard and Stanford, respectively. In their research, Li and Akbarpour were interested in examining online advertising exchanges as first-price auctions. They realized that in this scenario, the auctioneer may have an incentive to run an unfair auction in order to increase revenue. Thus, they set to find out what would happen if bidders are worried the auctioneer might cheat.
In this specific article, Li and Akbarpour spoke to AdExchanger, a media company focused on digital advertising and marketing, about the key factors that publishers and marketers should consider when participating in a first-price auction. Their recommendations can be categorized into three main factors: emphasizing value, ensuring transparency, and remaining wary of buyer collusion. First, they stressed that value is just as important as price, arguing that “winning” an auction isn’t always about paying the least amount of money, but rather about maximizing the value of the item you’re buying. In other words, you want the highest payoff from any item you buy. Second, they believe that the best market outcome comes from full transparency between auctioneers and buyers. Auctioneers (or publishers, in this case) should give bidders as much information as possible to help them optimize their bids, in order to create an efficient market. Li and Akbarpour argue that publishers who try to manipulate the information given to bidders in order to increase revenue (i.e. raising their bid floors) may potentially end up losing revenue instead. Finally, Li and Akbarpour caution publishers to remain wary of “buyer collusion,” which they define as when buyers either share information with each other to lower the price they end up paying, or when buyers “take turns” winning in order to keep prices low. In either scenario, prices will be driven down and publishers will lose revenue.
The concepts discussed in this article are relevant to the class material covering auction theory, specifically first-price auctions. We know that in first-price auctions, the dominant strategy is to bid one’s true value. Thus, we can use this knowledge to understand how publishers and marketers may interact with each other for online advertising exchanges, and how each group may try to manipulate the other for their own personal gain. This article also shows us that auctions are more prevalent in our daily lives than we may think, and that it benefits us to understand how they truly work.