LemonAds: Impression Quality in Programmatic Advertising (under review)

Francesco Balocco, Lu Yixin, Ting Li, Alok Gupta

Research output: Working paperAcademic

Abstract

Many advertisers in the display advertising market feel they are paying for impressions that users rarely see. Such quality concerns have driven increasing adoption of the private marketplace (PMP) channel in parallel with the real-time bidding (RTB) channel. RTB is open to all advertisers, whereas PMP requires advertisers to stipulate an ex-ante agreement with publishers that provides quality assurance of the ad inventory. Despite being seen as a credible channel for high-quality impressions, it is unclear how the adoption and use of PMP would affect the payoffs of publishers and advertisers in RTB, and whether the co-existence of the two market channels benefits both publishers and advertisers in the long run. To address these questions, we first develop a stylized game-theoretical model to characterize the strategic interactions between advertisers and publishers in a dual-channel setting. The equilibrium analysis shows that dual-channel publishers can extract adverse selection rents from their single-channel counterparts in RTB. As such, advertisers do not benefit from the quality assurance promised by PMP. We then conduct an empirical test of our theoretical predictions using a large proprietary dataset. The results provide strong evidence of adverse selection. In particular, we find that dual-channel publishers offer significantly lower quality impressions than their single-channel counterparts in RTB. Our study provides timely insights to practitioners in the ad industry.
Original languageEnglish
Publication statusPublished - 2022

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