Dynamic Revenue Sharing
20 Pages Posted: 25 Apr 2017
Date Written: April 21, 2017
Many online platforms act as intermediaries between a seller and a set of buyers. Examples of such settings include online retailers (such as Ebay) selling items on behalf of sellers to buyers, or advertising exchanges (such as AdX) selling pageviews on behalf of publishers to advertisers. In such settings, revenue sharing is a central part of running such a marketplace for the intermediary, and fixed-percentage revenue sharing schemes are often used to split the revenue among the platform and the sellers. In particular, such revenue sharing schemes require the platform to (i) take at most a constant fraction α of the revenue from auctions and (ii) pay the seller at least the seller declared opportunity cost c for each item sold. A straightforward way to satisfy the constraints is to set a reserve price at c/(1 − α) for each item, but it is not the optimal solution on maximizing the profit of the intermediary.
While previous studies (by Mirrokni and Gomes, and by Niazadeh et al) focused on revenue sharing schemes in static double auctions, in this paper, we take advantage of the repeated nature of the auctions. In particular, we introduce dynamic revenue sharing schemes where we balance the two constraints over different auctions to achieve higher profit and seller revenue. This is directly motivated by the practice of advertising exchanges where the fixed-percentage revenue-share should be met across all auctions and not in each auction. In this paper, we characterize the optimal revenue sharing scheme that satisfies both constraints in expectation. Finally, we empirically evaluate our revenue sharing scheme on real data.
Keywords: Dynamic Revenue Sharing, Internet Advertising, Revenue Sharing, Ad Exchanges, Two-sided Markets
JEL Classification: D44, C73 ,D82
Suggested Citation: Suggested Citation