Multichannel Auction Strategies in Online Advertising With a Profit Model

In the online advertising market that has increasingly emerged with the Internet's rapid development, supply side platforms (SSP) use multichannel auctions to sell demand side platform (DSP) advertisements. To explore which channel is dominant, we analyze three channels including direct bidding, bidding with costly information and proxy bidding. We develop an analytical model for studying the SSP's channel decisions and expected profit that will be generated in the context of such multichannel auctions. First, we construct the SSP profit models for these different channels. Then, comparing the profits, we analyze the formulation of strategies for these different situations. Importantly, for the three channels, we study how the probability that bidders will attach a higher value to advertisements influences the multichannel strategy of the SSP. The results show the following: (1) each channel has a market share; (2) it is better for SSPs to use the costly bidding channel if the probability that the bidders are higher value bidders is low or very high; and (3) the SSPs should consider the use of proxy bidding when the reserve price is high and the probability of having higher value bidders is not high.