Competition between demand-side intermediaries in ad exchanges

Online advertising constitutes one of the main sources of revenue for the majority of businesses on the web. Online advertising inventory was traditionally traded via bilateral contracts between publishers and advertisers, vastly through a number of intermediaries. However, what caused an explosion in the volume and, consequently, the revenue of online ads was the incorporation of auctions as the major mechanism for trading sponsored search ads in all major search engines. This reduced transaction costs and allowed for the advertisement of small websites which constitute the majority of Internet traffic. Auction-based markets were harder to establish in the display advertising industry due to the higher volume of inventory and the pre-existence of traditional intermediaries, often leading to inefficiencies and lack of transparency. Nevertheless, this has recently changed with the introduction of the ad exchanges, centralized marketplaces for the allocation of display advertising inventory that support auctions and real-time bidding. The appearance of ad exchanges has also altered the market structure of both demand-side and supply side intermediaries which increasingly adopt auctions to perform their business operations. Hence, each time a user enters a publisher's website, the contracted ad exchange runs an auction among a number of demand-side intermediaries, each of which represents their interested advertisers and typically submits a bid by running a local auction among these advertisers.Against this background, within this thesis, we look both at the auction design problem of the ad exchange and the demand-side intermediaries as well as at the strategies to be adopted by advertisers. Specifically, we study the revenue and efficiency effects of the introduction and competition of the demand-side intermediaries in a single-item auction setting with independent private valuations. The introduction of these intermediaries constitutes a major issue for ad exchanges since they hide some of the demand from the ad exchange and hence can make a profit by pocketing the difference between what they receive from their advertisers and what they pay at the exchange. Ad exchanges were created to offer transparency to both sides of the market, so it is important to study the share of the revenue that intermediaries receive to justify their services offered given the competition they face by other such intermediaries. The existence of mediators is a well-known problem in other settings. For this reason, our formulation is general enough to encompass other areas where two levels of auctions arise, such as procurement auctions with subcontracting and auctions with colluding bidders.In more detail, we study the effects of the demand-side intermediaries' choice of auction for three widely used mechanisms, two variations of the second-price sealed-bid (known as Vickrey) auction, termed PRE and POST, and first-price sealed-bid (FPSB) auctions. We first look at a scenario with a finite number of intermediaries, each implementing the same mechanism, where we compare the profits attained for all stakeholders. We find that there cannot be a complete profit ranking of the three auctions: FPSB auctions yield higher expected profit for a small number of competing intermediaries, otherwise PRE auctions are better for the intermediaries. We also find that the ad exchange benefits from intermediaries implementing POST auctions. We then let demand-side intermediaries set reserve (or floor) prices, that are known to increase an auctioneer's expected revenue. For issues of analytical tractability, we only consider scenarios with two intermediaries but we also compare the two Vickrey variations in heterogeneous settings where one intermediary implements the first whereas the other implements the second variation. We find that intermediaries, in general, follow mixed reserve-price-setting strategies whose distributions are difficult to derive analytically. For this reason, we use the fictitious play algorithm to calculate approximate equilibria and numerically compare the revenue and efficiency of the three mechanisms for specific instances. We find that PRE seems to perform best in terms of attained profit but is less efficient than POST. Hence, the latter might be a better option for intermediaries in the long term.Finally, we extend the previous setting by letting advertisers strategically select one of the two intermediaries when the latter implement each of the two Vickrey variations. We analytically derive the advertisers' intermediary selection strategies in equilibrium. Given that, in some cases, these strategies are rather complex, we use again the fictitious play algorithm to numerically calculate the intermediaries' and the ad exchange's best responses for the same instances as before. We find that, when both intermediaries implement POST auctions, advertisers always select the low-reserve intermediary, otherwise they generally follow randomized strategies. Last, we find that the ad exchange benefits from intermediaries implementing the pre-award Vickrey variation compared to a setting with two heterogeneous Vickrey intermediary auctioneers, whereas the opposite is true for the intermediaries.<br/

Development of an Autonomous Double Auction Market for its Effective Operation in Competitive Environments

The objective of this thesis is the development of an autonomous Double Auction (DA) market capable of operating efficiently in an isolated as well as in competitive environments. A well known example of such an institution is the stock market. Besides their multi-annual study and operation, DAs continue constituting a theoretical paradox. They succeed to exhibit an increased efficiency with the implementation of very simple rules, even if there still has not been achieved a satisfactory theoretical model from the field of Mechanism Design. In order to overcome this shortcoming, researchers have turned their attention to experimental techniques for the study and implementation of new, innovative rules, a field known as Automated Mechanism Design. However, all studies up to now deal with markets that operate free of charge in an isolated environment, something which does not correspond well in today’s global economy, where each country’s stock markets compete with each other as well as with the remainder stock exchanges worldwide in order to achieve high profits and market-share. TAC Market Design (or CAT) is an attempt to study this kind of institutions and made its appearance in 2007. In CAT, entrants represent stock markets that compete with each other while being evaluated in a number of realistic criteria. This thesis presents the game of CAT and all the strategies that were implemented by our agent, Mertacor, with which we participated these two years that the competition is being conducted and which was placed 8th and 5th respectively

Electricity Tariff Design and Implementation for the Smart Grid

The electric power system is one of the largest complex adaptive systems, yet its centralized electromechanical operation remains unaltered since its invention in the last century. This model used to be adequate for the previous decades. However, energy demand continuously increases and we will soon be unable to satisfy it with current technology. Additionally, there is a need for reduction in CO2 emissions. More specifically, in the U.K., the 2008 Climate Change Act mandates an 80% CO2 emission reduction by 2050. These facts will inevitably lead to the mainstream usage of renewable energy systems during the following years. Moreover, today's power system lacks transparency as customers have no way of monitoring and controlling their energy usage besides reading their monthly bills, communication is one-way, and there is no real supervision of the distribution system. All these factors led researchers to the quest for a new power system model, which was named the Smart Grid. This model is influenced by the World Wide Web, operating in a decentralized manner, with many producers and consumers of various generation capabilities and consumption patterns. Consumers are able to obtain real-time information on their energy and carbon footprints with the use of smart-metering devices but, most important, are capable of responding appropriately to signals they receive from the Grid. Along with the technical issues, a transformation of current business models is essential. Although electricity market deregulation has decreased wholesale prices, this change has not been perceived by final customers. This is due to the fact that most of electricity trading is performed through long-term contracts between generators and suppliers via risk management instruments so that customers can pay fixed prices no matter what is the true cost of delivery on behalf of the utilities. In this project we have made an effort to study customer bill savings for a variety of electricity tariffs on real data from a U.K. neighbourhood. New types of tariffs that have been previously applied to large industrial and commercial clients have been tested on a population of residential customer agents. To our knowledge, this is the first time that an agent-based simulation for this type of tariffs has been performed in the U.K. based on a realistic wholesale market setting. Our results show that both customers and suppliers could benefit from real-time pricing rates in terms of profit attained as well as corresponding risk

CAT 2008 Post-Tournament Evaluation: The Mertacor’s Perspective

TAC Market Design (or CAT) tournament is an effort to study the competition among modern stock exchanges trying to attract potential traders while maximizing their profit. This paper shortly presents Mertacor, our entrant for 2008, and makes an attempt to evaluate its performance. We compare Mertacor with the other available entries for the setting of CAT 2008 as well as beyond the tournament. What’s more, we introduce a simple yet effective way of computing the global competitive equilibrium that Mertacor utilizes and discuss about its importance for the game

Mertacor 2009 Demystified: Strategies and Guidelines for Market Design in TAC

Current global economy involves highly interconnected markets competing with each other for market share and profit. The recent global financial crisis has revived research interest in this competition and has brought out the need for novel, efficient rules. TAC Market Design tournament is one of the first efforts in studying the interaction between opponent stock exchanges. In this paper, we describe our entrant for 2009, Mertacor, and reason about the importance of proper pricing in this global setting

Competing intermediaries in online display advertising

Motivated by the emergence of online advertising exchanges, where display advertisements are traded in real time via specialized intermediaries, such as advertising networks and demand side platforms, we analyze a scenario in which a single, indivisible good is auctioned at a central seller via two intermediary auctions, all implementing Vickrey auctions. We study, for the first time, the selection problem faced by the buyers who have to decide in which intermediary auction to bid after observing the set reserve prices. We find that, in case of complete information about the buyers’ valuations for the good, an infinite number of Nash equilibria exist for the selection strategies, and that reserve prices are driven up, as opposed to the classical setting without intermediaries. We also illustrate that the reserve price setting problem of the intermediaries admits a symmetric subgame-perfect equilibrium.</p

Auction mechanisms for demand-side intermediaries in online advertising exchanges

Motivated by the online advertising exchange marketplace where demand-side intermediaries conduct local upstream auctions and participate in the exchanges’ real-time auctions, we study the revenue and efficiency effects of three different auction mechanisms for such intermediaries. Specifically, we consider the widely-used first-price sealed-bid auction and two variations of the Vickrey auction (termed pre- and post-award), in a single-exchange single item setting. We show that, for a homogeneous population of intermediaries with captive buyers competing at the exchange, the three mechanisms yield different expected profits for the intermediaries and revenue for the exchange, but a complete ranking for all mechanisms cannot be attained. We also demonstrate that the optimal reserve price of the exchange increases with the number of buyers and/or intermediaries, and that the social welfare decreases, compared to classical auctions without intermediaries. Moreover, we show that pre-award Vickrey auctions are less efficient than the other mechanisms. Finally, we compare the two Vickrey variations in a duopoly setting with non-captive buyers, and show that all buyers always select the post-award mechanis