Correspondence: Guillaume Roels, UCLA Anderson School of Management, University of California in Los Angeles, 110 Westwood Plaza, B511, Los Angeles, California 90095, USA. E-mail: groels@anderson.ucla.edu

¹is Assistant Professor at the UCLA Anderson School of Management, at the University of California in Los Angeles. His research interests lie in service operations, revenue management and supply chain management. His research has been published in various journals including Management Science, Operations Research and Manufacturing & Services Operations Management. He obtained his PhD in Operations Research at the Massachusetts Institute of Technology.

²is Assistant Professor at London Business School. Her research focuses on pricing and revenue management, the interface of marketing and operations and queueing modelling. Her research has been published in journals such as Operations Research. She did her PhD in Management Science and Engineering at Stanford University.

Received 27 January 2009; Revised 27 January 2009; Published online 1 May 2009.

Abstract

In this paper, we propose a dynamic optimisation model to maximise a web publisher's online display advertising revenues. Our model dynamically selects which advertising requests to accept and dynamically delivers the promised advertising impressions to viewers so as to maximise revenue, accounting for uncertainty in advertising requests and website traffic. After characterising the structural properties of our model, we propose a Certainty Equivalent Control heuristic and then show with a real case study that our optimisation-based method outperforms common practices. These results highlight the importance of accounting for the opportunity cost of capacity allocation in advertisement contract negotiation for globally maximising online publishers' revenues.