Wednesday, May 10, 2006

A Beautiful Mind ... for Advertising?

If you have seen the movie A Beautiful Mind but have not read the book, I recommend that you read it (if you have perused neither, skip the movie and read the book). The movie took many liberties with reality, but the book is a masterpiece. It is amazing to gain insight into the mind of John Nash, who suffers from paranoid schizophrenia.

Nash gained fame for his doctoral dissertation and what would be called the "Nash Equilibrium" as it occurs in strategic non-cooperative games. Nash's story is poetic. But more interesting to me is that principles of game theory outlined by Nash are still being used.

The book outlines that Nash's principles were used in the construction of an auction for broadcast spectrum licenses. It seems that bidders are not cooperating, but they do strategize for the best price.

While reading yesterday about TV upfronts (a bizarre process where the networks preview their upcoming shows to advertisers, who then buy time) I wondered why some smart economist had not set up some Nash-style auction.

Indeed someone has. Advertising Age is reporting that, "A group of marketers led by Wal-Mart's Julie Roehm today put out the call for advertisers to contribute $50 million for a test of an online auction system to buy and sell TV advertising." eBay for ads, in a nutshell.

Right now the proposal targets only cable and other fringe components of television. The big networks -- which are accustomed to driving the process through upfronts -- are absent from the process. But I not-so-boldly predict that the project will succeed, and the auction will become the standard.

As it did with broadcast spectrum licenses, this system will produce the best results for the "many" in a competitive system. The "few" will be able to hold out only so long.


Post a Comment

<< Home