An economic analysis of maximally representative allocations

Abstract

ABSTRACT Within online advertising, there has been remarkable growth in display advertising. Our study focuses on the publisher’s allocation of its targeted advertising inventory – to this end, we employ the Hotelling model and use maximally representative allocation in our calculations. We then determine the supremum and infimum prices of a guaranteed contract allocated to advertisers. Rather significantly, our model provides a hybrid channel strategy for a publisher that allows the traditional method of targeted advertising and real-time bidding to coexist. We thus demonstrate the difference in each strategy’s outcome. The study reveals that the revenue of the publisher increases when it employs a hybrid channel strategy. Further, advertisers can bid for real-time bidding impressions in pursuit of high user conversion and simultaneously purchase a guaranteed contract in advance to reduce risk under conditions of sufficient funding.