Coordinating Contract Size And Pricing Srategres For Online Display Advertisement

This article mainly considers the optimal contract and pricing decision problems for online display advertisement industry where both advertiser and publisher try to maximize their expected revenue. We model the entire decision process as a Stackelberg game that involves one advertiser and one publisher. Both players interact with each other through the setting of unit price of advertisement which affects the decisions for everyone. As the game leader, the publisher initiates the game by setting unit price of advertisement, which can be noted as cost per impression (CPM) under pay per view (PPV) pricing scheme or cost per click (CPC) under pay per click (PPC) pricing scheme, and each player aims at maximizing his/her own expected revenue. We first provide and analyze a single contract model with pay per view (CPM) pricing scheme, which is shown to be equivalent to the newsvendor problem. We then consider a stochastic optimization problem with a different pricing scheme, pay per click (CPC) pricing scheme. We show the existences of the publisher's unique best response under both pricing schemes and analyze how the optimal decision will change as parameters change by providing numerical experiments that illustrate the change of optimal pricing strategy by changing different parameters in both cases. We further developed the model by introducing the balancing mechanism between the two pricing schemes studied. The results show that the optimal prices of the two payment schemes studied in this paper can be obtained by a simple and effective policy that based on the input of available parameters. In particular, we show that the suggested optimal pricing decisions are significantly influenced by the click through rate. The process of proof in the derivation of the optimal price serves as an important complement and breakthrough to previously existing literatures. Furthermore, we develop a balancing model between the CPM and CPC contract from the perspective of both the publisher and the advertiser. We show that there is a trade off when the publisher allocates his/her limited page view capacity between CPM and CPC contracts.