Open and Private Exchanges in Display Advertising
Marketing Science · 2023 · Volume 42 · Issue 3
Abstract
We study the impact of the emergence of private exchanges (PX) on the display advertising market. Unlike open exchanges (OX), the original exchange types that are open to all publishers and advertisers, the newly emerged PX is only available to a smaller set of prescreened advertisers and publishers through an invite-only process. The OX exposes advertisers to ad fraud and brand safety risks, whereas the PX ensures that advertisers purchase high-quality impressions from reputable publishers. Although the assurance of higher quality increases advertisers’ valuation for the PX impressions, we find that selling through both the OX and PX can hurt publishers by creating an information asymmetry among advertisers. In equilibrium, the publisher may sell through the OX, PX, or both depending on the baseline fraud intensity and the advertisers’ average valuations. Finally, our model sheds light on the OX’s incentive to fight fraud. In the absence of the PX, the OX has low incentive to combat fraud because it earns commission from fraudulent transactions. However, the introduction of the PX may create competitive pressure such that the OX screens fake impressions (i.e., the PX may induce the market to self-regulate). History: Olivier Toubia served as the senior editor and Krista Li served as associate editor for this article. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mksc.2022.1399 .
Keywords
display advertising, real-time bidding, first-price auction, private exchange, open exchange, advertising fraud
Enable JavaScript for citation tools and additional paper interactions.