Publication Date: July 2021
In digital advertising, a publisher selling impressions faces a trade-oﬀ in deciding how precisely to match advertisers with viewers. A more precise match generates eﬀiciency gains that the publisher can hope to exploit. A coarser match will generate a thicker market and thus more competition. The publisher can control the precision of the match by controlling the amount of information that advertisers have about viewers. We characterize the optimal trade-oﬀ when impressions are sold by auction. The publisher pools premium matches for advertisers (when there will be less competition on average) but gives advertisers full information about lower quality matches.
Keywords: Second Price Auction, Conflation, Digital Advertising, Impressions, Bayesian Persuasion, Information Design
JEL Classification Codes: D44, D47, D83, D84