Deals or No Deals: Contract Design for Online Advertising

Abstract

We present a formal study of first-look and preferred deals that are a recently introduced generation of contracts for selling online advertisements, which generalize traditional reservation contracts and are suitable for advertisers with advanced targeting capabilities. Under these deals, one or more advertisers gain priority access to an inventory of impressions before others and can choose to purchase in real time. In particular, we propose constant-factor approximation algorithms for maximizing the revenue that can be obtained from these deals when offered to all or a subset of the advertisers, whose valuation distributions can be independent or correlated through a common value component. We evaluate our algorithms using data from Google’s ad exchange platform and show they perform better than the approximation guarantees and obtain significantly higher revenue than auctions; in certain cases, the observed revenue is 85%–96% of the optimal revenue achievable. We also prove the NP-hardness of designing deals when advertisers’ valuations are arbitrarily correlated and the optimality of menus of deals among a certain class of selling mechanisms in an incomplete distributional information setting.