Optimal Bidding Strategies for Online Ad Auctions with Overlapping Targeting Criteria

Abstract: We analyze the problem of how to optimally bid for ad spaces in online ad auctions. For this we consider the general case of multiple ad campaigns with overlapping targeting criteria. In our analysis we first characterize the structure of an optimal bidding strategy. In particular, we show that an optimal bidding strategies decomposes the problem into disjoint sets of campaigns and targeting groups. In addition, we show that pure bidding strategies that use only a single bid value for each campaign are not optimal when the supply curves are not continuous. For this case, we derive a lower-bound on the optimal cost of any bidding strategy, as well as mixed bidding strategies that either achieve the lower-bound, or can get arbitrarily close to it.