Smart Pricing Grows the Pie

Some publisher advertising networks provide features intended to help advertisers bid more efficiently with a single bid in many publishers’ click auctions at once – Smart Pricing on the Google Display Network is one example. Typically such features involve discounting advertiser bids or prices for clicks on publisher websites according to how click values vary across sites (for some appropriate measure of advertiser value). Contrary to concerns that such features necessarily result in reduced publisher (and network) revenue we find that, in many simple cases, the modified auction dynamics produce rational incentives for advertisers to bid more – and spend more – than they would without the benefit of these features. So if advertisers act in their own interest then publishers and networks stand to make more revenue as well.

• Economics and Electronic Commerce

• Algorithms and Theory