Fairness in Generalized Second Price-auctions
Watts, A. Fairness and Efficiency in Online Advertising Mechanisms. Games 2021, 12, 36. https://doi.org/10.3390/g12020036
While we have explored the application of the generalized second price-auction in bidding for ad spots online, we haven’t asked how equitable this means of ad distribution is to consumers and advertisers. Watt’s article explores this subject as she proposes that the random assignment mechanism can increase fairness in online advertising.
As described by Watt’s, fairness in online advertising is when similar consumers are shown similar ads and aren’t shown an inefficient advertiser repeatably. The random assignment mechanism allows greater fairness by enabling advertisers to bid for the opportunity to display an ad and all advertisers above a certain threshold are given an equal chance to display their ad to the consumer. This is in contrast to an ascending auction, where advertisers place bids and drop out at a given price until there is one bidder left. To assess the fairness of both mechanisms, she designs a model where she can assess the fairness to consumers based upon maximizing their payoff and ensuring that similar agents (advertisers) receive the same time payoff. Through a series of propositions with different amounts of advertisers, ad spots available, and prices per click, she found that the random assignment mechanism was either more or equally efficient and fair compared to the ascending auction while making it less likely to assign inefficient advertisers multiple times.
This article relates to the content of our course as it addresses the alternative ways of improving online advertising. Our textbook briefly mentions that there is still ongoing research on achieving Nash equilibrium in a generalized second-price auction, and Watt’s paper explores one of the factors that go into this research. It also goes beyond the scope of the course as it explores the concept of equity. As targets of advertisers, consumers can often received misdirected or offensive ads due to the inaccuracy of profiles ad companies design based on our search. Methods like those proposed by Watt’s allow for generalized second-price auctions to be more effective as the ad content displayed to us has more opportunities to reflect our interest if it’s spread across similar advertisers.