Ad Exchange: Envy-Free Auctions with Mediators

TL;DR

This paper models ad exchanges with mediators as a three-party market, introducing a new envy-free equilibrium concept and providing algorithms for its computation under certain valuation assumptions.

Contribution

It extends combinatorial auction theory to model ad exchanges with mediators, proving the existence of a three-party equilibrium and offering a polynomial-time algorithm for gross-substitute valuations.

Findings

Existence of a three-party competitive equilibrium.

Polynomial-time algorithm for gross-substitute valuations.

Envy-freeness for all market participants.

Abstract

Ad exchanges are an emerging platform for trading advertisement slots on the web with billions of dollars revenue per year. Every time a user visits a web page, the publisher of that web page can ask an ad exchange to auction off the ad slots on this page to determine which advertisements are shown at which price. Due to the high volume of traffic, ad networks typically act as mediators for individual advertisers at ad exchanges. If multiple advertisers in an ad network are interested in the ad slots of the same auction, the ad network might use a "local" auction to resell the obtained ad slots among its advertisers. In this work we want to deepen the theoretical understanding of these new markets by analyzing them from the viewpoint of combinatorial auctions. Prior work studied mostly single-item auctions, while we allow the advertisers to express richer preferences over multiple items. We develop a game-theoretic model for the entanglement of the central auction at the ad exchange with the local auctions at the ad networks. We consider the incentives of all three involved parties and suggest a three-party competitive equilibrium, an extension of the Walrasian equilibrium that ensures envy-freeness for all participants. We show the existence of a three-party competitive equilibrium and a polynomial-time algorithm to find one for gross-substitute bidder valuations.