Competing Intermediaries in Online Display Advertising

Motivated by the emergence of online advertising exchanges, where display advertisements are traded in real time via specialized intermediaries, such as advertising networks and demand side platforms, we analyze a scenario in which a single, indivisible good is auctioned at a central seller via two intermediary auctions, all implementing Vickrey auctions. We study, for the first time, the selection problem faced by the buyers who have to decide in which intermediary auction to bid after observing the set reserve prices. We find that, in case of complete information about the buyers' valuations for the good, an infinite number of Nash equilibria exist for the selection strategies, and that reserve prices are driven up, as opposed to the classical setting without intermediaries. We also illustrate that the reserve price setting problem of the intermediaries admits a symmetric subgame-perfect equilibrium.