VCG Payments for Portfolio Allocations in Online Advertising

Abstract: Some online advertising offers pay only when an ad elicits a response. Randomness and uncertainty about response rates make showing those ads a risky investment for online publishers. Like financial investors, publishers can use portfolio allocation over multiple advertising offers to pursue revenue while controlling risk. Allocations over multiple offers do not have a distinct winner and runner-up, so the usual second-price mechanism does not apply. This paper develops a pricing mechanism for portfolio allocations. The mechanism is efficient, truthful, and rewards offers that reduce risk.