Intermediation in Online Advertising

Abstract

In online advertising, impressions are sold via real-time auctions which are organized by central platforms referred to as ad exchanges. For technological or operational reasons, advertisers generally participate in the auctions run by exchanges through intermediaries which acquire impressions on their behalf. Intermediaries are specialized entities that provide targeted services for a particular segment of the market, and typically there are multiple stages of intermediation. Moreover, an advertiser may have private information, e.g., budget, targeting criterion or value attributed to an impression. The presence of intermediaries and this information asymmetry introduce several new research questions. In the first part of this chapter, we study the mechanism design problem of an intermediary who offers a contract to an advertiser with a private budget and a private targeting criterion. We characterize the optimal mechanism and establish that the presence of the intermediary results in simpler bidding policies. In the second part of this chapter, we study the strategic interaction among intermediaries organized in a chain network. We characterize a subgame perfect equilibrium of the resulting game among intermediaries and show that the most profitable position in the intermediation chain depends on the underlying value distribution of the advertiser.