Problem
Research questions and friction points this paper is trying to address.
hands-off-the-wheel advertising
uniform pricing
competitive equilibrium
auction mechanism
ROI constraints
One-Shot Pricing for Hands-Off-the-Wheel Advertising Markets
🤖 AI Summary
This study addresses the inefficiency of traditional impression-based ad auctions in “hands-off-the-wheel” (HOTW) markets, where platforms struggle to leverage known advertiser budgets and return-on-investment (ROI) constraints for optimal pricing. The authors model the HOTW market as a Fisher market and propose, for the first time, solving for competitive equilibrium prices and allocations via a single Eisenberg–Gale convex optimization program, thereby replacing numerous sequential auctions. This approach simultaneously satisfies advertisers’ budget and ROI requirements while maximizing platform revenue and circumventing demand reduction issues inherent in uniform pricing. Theoretical analysis demonstrates that the resulting equilibrium is equivalent to that of a sequential first-price auction with bid shading, significantly reducing operational complexity and achieving revenue optimality under uniform pricing.
📝 Abstract
Per-impression auctions have long served as the allocation mechanism in online advertising. We argue that in ``hands-off-the-wheel'' (HOTW) markets, where advertisers declare budgets and ``return-on-investment'' (ROI) targets and the exchange's ML models predict click values, auctions are no longer necessary: all information required for optimal pricing is already known to the exchange, which occupies the position of a monopolist pricing against a downward-sloping demand curve. A HOTW market is a Fisher market, whose competitive equilibrium can be computed via the convex program of Eisenberg and Gale, yielding market-clearing prices and allocations satisfying all budget and ROI constraints simultaneously. This competitive-equilibrium price is revenue-optimal for the exchange among all uniform-price mechanisms: avoiding the demand reduction problem in typical uniform-price multi-unit auctions. The resulting competitive equilibrium is moreover outcome-equivalent to sequential first-price auctions with pacing, with pacing multipliers computable ex-ante by the exchange. This one-shot approach replaces millions of individual auctions with one convex program, which is not only operationally simpler than dynamically evolving bidding strategies, but revenue-optimal for the exchange, while delivering the same equilibrium outcome.
Innovation
Methods, ideas, or system contributions that make the work stand out.
One-shot pricing
Hands-off-the-wheel advertising
Fisher market
Competitive equilibrium
Eisenberg-Gale convex program
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