VCG Payments for Portfolio Allocations in Online Advertising

TL;DR

This paper introduces a new pricing mechanism for portfolio allocations in online advertising, addressing the challenge of risk and uncertainty in ad responses, and ensuring efficiency and truthfulness.

Contribution

It develops a novel mechanism for portfolio-based ad allocations that handles multiple offers without a clear winner, ensuring truthful and efficient pricing.

Findings

The mechanism is proven to be efficient and truthful.

It rewards offers that help reduce risk.

The approach addresses the lack of a clear winner in portfolio allocations.

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.