Revenue management for online advertising: Impatient advertisers

Fridgeirsdottir, K and Najafi-asadolahi, S (2008) Revenue management for online advertising: Impatient advertisers. Working Paper. London Business School Decision Sciences Working Paper.

Abstract

The Internet is currently the fastest growing advertising medium. Online advertising brings new opportunities and has many different characteristics from advertising in traditional media that support efficient and mechanized decision making. We consider a web publisher that generates revenues from displaying advertisements on its website. The advertisers approach the web publisher, request their ad to be displayed to a certain number of visitors to the website, and are charged according to the socalled payperimpression pricing scheme. The advertisers are impatient and want their ads to be posted right away otherwise they approach another web publisher. We model the advertising operation of the web publisher as a queueing system with no waiting spaces (a loss system) where advertising slots correspond to servers. This system is different from known multiserver systems. We derive a closedform solution for its steady state probabilities and analyze the system properties. We determine the optimal advertising price and provide managerial insights such that the optimal price is increasing in the number of impressions made to the viewers, which goes against the economyofscale intuition. The queueing model is compared to known queueing systems such as the bulk system and we provide additional results for those.