DP16507 Selling Impressions: Efficiency vs. Competition

Author(s): Dirk Bergemann, Tibor Heumann, Stephen Morris, Constantine Sorokin, Eyal Winter
Publication Date: September 2021
Keyword(s): Bayesian persuasion, Conflation, Impressions, information design, Second Price Auction, targeted advertising, Two-Sided Private Information
JEL(s): D44, D47, D83, D84
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16507

In digital advertising, a publisher selling impressions faces a trade-off in deciding how precisely to match advertisers with viewers. A more precise match generates efficiency gains that the publisher can hope to exploit. A coarser match will generate a thicker market and thus more competition. The publisher can control the precision of the match by controlling the amount of information that advertisers have about viewers. We characterize the optimal trade-off when impressions are sold by auction. The publisher pools premium matches for advertisers (when there will be less competition on average) but gives advertisers full information about lower quality matches.