Incorporating Hidden Costs of Annoying Ads in Display Auctions

A media platform’s policy on obtrusive ads mediates an effectiveness-nuisance tradeoff. Allowing more obtrusive advertising can increase the effectiveness of ads, so the platform can elicit more short-term revenue from advertisers, but the nuisance to viewers can decrease their engagement over time, which decreases the platform’s opportunity for future revenue. To optimize long-term revenue, a platform can use a combination of advertiser bids and ad impact on user experience to price and allocate ad space. We study the conditions for advertisers, viewers, and the platform to simultaneously benefit from using ad impact on user experience as a criterion for ad selection and pricing. It is important for advertisers to benefit, because media platforms compete with one another for advertisers. Our results show that platforms with more advertisers competing for ad space are more likely to generate increased profits for themselves and their advertisers by introducing ad impact on user experience as a factor in their auction mechanisms. As a result, doing so can be a successful strategy in competition against other platforms.