Modeling Advertisers' Willingness to Pay in TV Commercial Slot Auctions

Abstract Auctions are receiving increasing attention from both practitioners and researchers in the TV advertising market. This paper studies advertisers' willingness to pay (WTP) in Hong Kong television commercial slot auctions, defined as overlapped, multiple-winner auctions with discrete, ascending, semi-sealed bids. We specify advertisers' WTP as a parametric function of their valuations of slot-specific attributes and the valuations that depend on the context of the focal auction and on the competition from other auctions of similar commercial slots. We extend the two “no-regret” bidding principles (first proposed by Haile and Tamer 2003 ) to obtain informative boundary conditions for asymptotical identification. The estimation results suggest that advertisers' WTP increases with the TV rating of the program in which the advertisement is embedded and decreases with the bidder's bidding experience and the number of similar slot options available. The WTP also depends on the number of bidders classified into the same product category, as two directly competing advertisers are not allowed to advertise in the same commercial break. In the current practice, advertisers submit discrete bids using price levels set by the TV station. Based on the recovered bidder's WTP, we investigate how the TV station can set adjacent price levels and examine the resulting revenue implications.