Competition Among Asymmetric Sellers with Fixed Supply Uriel Feige ( Weizmann Institute of Science ) Ron Lavi ( Technion and Yahoo! Labs ) Moshe Tennenholtz ( Technion and MSR ) * Work conducted at MSR Herzliya

Motivation: markets for ads... Thousands of advertisers Handful of publishers B1B2B3Bn q1 q2 Abstract view: Publishers: Determine allocation of slots to advertisers, based on budgets given to them. Cannot adjust size of supply! Advertisers: Based on publishers’ policies, assign budgets. Motivation: How should publishers choose allocation policies to maximize revenue?

Motivation: markets for ads... n advertisers m publishers BBBB q1q1 qmqm This work: Symmetric advertisers, non-symmetric publishers:...

The Model... n buyers m sellers BBBB q1q1 qmqm This work: Symmetric buyers, non-symmetric sellers:...

This model was studied previously: Friedman (1958): – Assumes sellers’ policies are “proportional”: seller j gives buyer i* (b i*j /  i b ij )q j (b ij is the budget that seller j receives from buyer i) This is a “Blotto game” (Generals send soldiers to battlefields) – Studied many times over the years… Also applied to political campaigns, e.g., Snyder (1989) – “Seller” = voting district (supply = number of district voters); “Buyer” = political party that partitions its budget among the various districts. And much more…

Key Difference Previous work: Sellers with fixed exogenous allocation policies – Makes sense for battlefields, voting districts, etc. – But publishers are strategic and are free to determine their own allocation policies This work: Sellers endogenously determine allocation policies to maximize revenue – (In the language of Blotto games: a battlefields decides on its winning function, to maximize the number of soldiers it gets)

Summary of the game Sellers determine allocation policies: given budget assignments, how much items each buyer receives Given allocation policies, buyers partition budgets among sellers Resulting utility of sellers: number of dollars obtained Resulting utility of buyers: number of items obtained – Same assumption as in previous work, this not quasi-linear Assumptions (following previous work): – Complete information – Buyers play a Nash eq. (pure or mixed) of the resulting ”buyers game” (after observing the allocation policies).

Convenient Change of Units... n buyers m sellers B=1 q1q1 qmqm... B=1  i q i = n

“Fair Share”... n buyers m sellers B=1 q1q1 qmqm... B=1  i q i = n Overall: n dollars, n items A reasonable outcome: each item costs one dollar This is the unique Walrasian outcome In this outcome, the revenue of seller j is q j We call q j the “fair share” revenue of seller j.

“Fair Share” Overall: n dollars, n items A reasonable outcome: each item costs one dollar This is the unique Walrasian outcome In this outcome, the revenue of seller j is q j We call q j the “fair share” revenue of seller j. THM (Friedman 1958) If all sellers use proportional allocation, there is a unique Nash equilibrium of the buyers game whose outcome is the fair share outcome. Proportional allocation: seller j gives buyer i* (b i*j /  i b ij )q j (b ij : budget to seller j from buyer i)

“Fair Share” Overall: n dollars, n items A reasonable outcome: each item costs one dollar This is the unique Walrasian outcome In this outcome, the revenue of seller j is q j We call q j the “fair share” revenue of seller j. THM (Friedman 1958) If all sellers use proportional allocation, there is a unique Nash equilibrium of the buyers game whose outcome is the fair share outcome. Thus, collectively, sellers can implement the fair share outcome But, acting strategically, some sellers may use other policies. Can a seller guarantee her fair share?

Safety Level THM 1: If seller j uses proportional allocation, her revenue in any Nash equilibrium of the resulting buyers game will be strictly larger than q j – 1, regardless of the allocation policies used by the other sellers. Remarks: Proportional allocation guarantees q j – 1 but does not guarantee q j (we give an example for that). No strategy can guarantee more than q j +1 We do not know what is the maximal possible guarantee in the interval [ q j – 1, q j + 1 ], and what strategy achieves it.

Extremely Asymmetric Supply Conclusion: a seller with large supply can guarantee almost her fair share, and that’s almost the best she can do (up to an additive +/-1 term). But for a seller with extremely small supply this additive term is very significant. Extreme example: q H = n – ( 1 - 1/n), q L = 1 - 1/n – The THM is meaningless for L – Suppose H uses proportional allocation. By placing all budget with H, every buyer can obtain at least q H /n > q L – Therefore all buyers will put all their budget with H

Are Extreme Asymmetries Common? Consider an Example: 800 buyers, 2 sellers, q H = 720, q L = 80 – On the face of it, supply is not extremely asymmetric (e.g. L can guarantee $79 using proportional allocation). But, suppose this market is actually divided equally to 100 separate sub-markets – The Internet advertising market is divided to many small markets (based on properties like geo, gender, age, smarter targeting…) Each sub-market has 8 buyers, q H =72, q L = 0.8 – H can offer at least 7.2/8 = 0.9 > 0.8 to each buyer. Thus, H obtains all budgets, leaving L with 0 revenue!

A special case with two sellers How extreme should the asymmetries be, for this to happen? The “first” case where the answer is non-trivial is the case of two sellers, q H = n-1, q L = 1 – THM 1 is still meaningless – But how can H 1 obtain more than her fair share? – The answer is not straight-forward, and includes two key ingredients: (i) Budget rigidity (ii) Elimination of Pure Nash

(i) Budget Rigidity A rigid buyer will not split his budget. A rigid seller will accept only rigid buyers. Rigidity can be enforced on the seller’s side by technological and marketing means. It can also originate from the buyer’s side, especially in more traditional markets. – This is also called “single-homing” in the literature – It is common even in Internet advertising [Ashlagi et al.] Remarks: Proportional allocation with budget rigidity gives the same guarantee as proportional allocation Typically, rigidity “favors” large sellers – Example: q1 = 13; q2, …, q9 = 1.5. n=25. All fractional surplus goes to seller 1. (Her revenue is 17, the revenue of every other seller is 1.)

Back to the special case (Reminder: two sellers, q H = n-1, q L = 1) If the H enforces rigidity, multiple equilibria emerge. In a pure Nash: One buyer goes to the L, all others go to H – This is the fair share outcome. Rigidity does not help… However there are also mixed Nash equilibria, including the natural symmetric equilibrium. THM 2: If the large seller enforces rigidity, in every mixed Nash equilibrium the revenue of the large seller is O(n – 1/n) while the revenue of the small seller is O(1/n).  Surprising and significant separation of resulting revenue

(ii) Elimination of pure Nash Proportional allocation among rigid buyers, with a gamble: If a single buyer is rigid and declares he “gambles”, he gets 1 + O(1/n) items. If multiple bidder gamble, they get nothing. All other rigid buyers equally split the remaining items. THM 3: If H uses this, and regardless of the policy of L, H’s revenue in every Nash equilibrium is O(n - 1/n). Technically, an allocation policy is a function of n numbers, without extra bits. The “gamble” can be a bid of 1- . Such allocation is non-monotone (a buyer can get more for less budget); we show that such non-monotonicity is required.

Additional Remarks 1.Restricting H to be monotone: – L cannot guarantee a revenue of 1, even if H is restricted to be monotone. – H cannot guarantee a revenue of n-1 if it is restricted to be monotone. – H can guarantee a revenue of n-1-O(1/n 2 ) with a monotone policy. 2.One way to generalize the case of two extremely asymmetric sellers is to have one large seller and multiple small sellers. In this case the small sellers’ aggregate supply must very small: THM: If all sellers in a set S use proportional allocation, their total revenue in any Nash equilibrium of the resulting buyers game will be strictly larger than (  j  S q j )– 1, regardless of the allocation policies used by the other sellers.

Summary Study competition among sellers that cannot adjust supply size – Determine allocation based on budgets given to them – Like a Blotto game with endogenous winning functions for battlefields A seller that uses proportional allocation can guarantee almost the fair share revenue (the revenue of the Walrasian outcome). – Holds for arbitrary supply sizes and any number of sellers When differences in supply are extreme, the large seller can drive the revenue of the small seller to be almost zero – Two sellers large and small – Optimal policy uses bid rigidity and elimination of pure Nash Main open question: how large supply differences must be, for the large seller to exercise such a extra power?

A bit of political science This model is relevant (among so many other things) to the question of assigning parliament seats as a function of the votes that a party receives in the elections? The analogy: – Parties are sellers, votes that a party receives are its supply. – Seats are rigid buyers (each seat has a budget of 1, to be given to the party who is assigned this seat). Pure Nash of proportional allocation with rigid budgets exactly implements a method invented by D’Hondt (1878) – Well known to favor large parties – Used until this day in many European countries – Already used by Thomas Jefferson (1792) Other methods (e.g. the Hare-Neimeyer method) can be represented as other natural allocation policies.