Auctions without commitment in the auto-bidding world

Understand

Advertisers in online ad auctions are increasingly using auto-bidding mechanisms to bid into auctions instead of directly bidding their value manually.

• One prominent auto-bidding format is the target cost-per-acquisition (tCPA) which maximizes the volume of conversions subject to a return-of-investment constraint.
• From an auction theoretic perspective however, this trend seems to go against foundational results that postulate that for profit-maximizing bidders, it is optimal to use a classic bidding system like marginal CPA (mCPA) bidding rather than using strategies like tCPA.
• In this paper we rationalize the adoption of such seemingly sub-optimal bidding within the canonical quasi-linear framework.