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VCG Payments for Portfolio Allocations in Online Advertising

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  • James Li
  • Eric Bax
  • Nilanjan Roy
  • Andrea Leistra

Abstract

Some online advertising offers pay only when an ad elicits a response. Randomness and uncertainty about response rates make showing those ads a risky investment for online publishers. Like financial investors, publishers can use portfolio allocation over multiple advertising offers to pursue revenue while controlling risk. Allocations over multiple offers do not have a distinct winner and runner-up, so the usual second-price mechanism does not apply. This paper develops a pricing mechanism for portfolio allocations. The mechanism is efficient, truthful, and rewards offers that reduce risk.

Suggested Citation

  • James Li & Eric Bax & Nilanjan Roy & Andrea Leistra, 2015. "VCG Payments for Portfolio Allocations in Online Advertising," Papers 1506.02013, arXiv.org.
    • Handle: RePEc:arx:papers:1506.02013
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    References listed on IDEAS

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