Marrying Pricing and Advertising with LLMs

As search increasingly shifts toward LLM-driven answer engines, advertising is becoming embedded within the generated response itself and should therefore be evaluated for both user utility and commercial value. The key challenge is click-through intent: behavioural logs are unavailable, human annotation resists calibration, and frontier LLM judges conflate intent with linguistic fluency. These gaps compound, as principled pricing presupposes a continuous intent signal, while generating such a signal presupposes supervision that is currently unavailable. We construct the missing supervision through a psychologically grounded agent simulation framework, and distil it into a parameter-efficient evaluator that predicts click-through intent, together with the three companion dimensions of ad quality, as smooth, differentiable estimates. Validated through sign-certain behavioural perturbations, the evaluator surpasses frontier zero-shot judges on relevance sensitivity (79% versus 60-67%), tracks graded content degradation, generalises without error to 103 fictional products, and agrees with human preference in 86% of pairwise judgements across five annotators, with agreement rising in the evaluator's confidence. Upon its estimates we build the pricing layer directly, deriving the unique payment rule under which truthful bidding is optimal, demonstrating it on a best-of-k allocation, and extending the mechanism to non-monotone allocations. The same differentiable signal stands ready as a training objective for ad generation.

LLM-native advertising embeds sponsored content directly into model-generated responses, shifting the unit of sale from a fixed slot to a moment within an evolving conversation. Existing LLM ad-auction mechanisms primarily operate within a single response, settling the winner but not the timing. The extension is nontrivial: with one native insertion opportunity per session, the stopping time depends on bids, coupling timing with allocation, so static truthfulness arguments no longer apply. We propose the LLM-based Optimal Stopping Dynamic Auction (LLM-OSDA), a dynamic cost-per-click auction that integrates Bellman optimal stopping, winner allocation, and envelope pricing. A bid-independent LLM layer estimates contextual click quality and seamlessly renders the winning ad, while bids enter only the committed auction mechanism. Under an exact Bellman oracle, the expected discounted-click allocation is monotone in each advertiser's bid, and the corresponding envelope payment makes truthful bidding weakly dominant in expectation. For practical deployment, a learned StopNet approximates the Bellman action values. We show that its decisions differ from the optimal policy only near the stopping boundary and bound the resulting incentive loss in terms of its approximation error. Experiments on a simulated conversational advertising corpus show that LLM-OSDA improves net revenue by 11 percent over the strongest fixed-timing baseline while maintaining comparable user retention. Code is at https://github.com/2025Fang2025/llm-osda.

As Large Language Models (LLMs) transition into conversational agents, generative advertising emerges as a crucial monetization strategy. However, embedding advertisements within unstructured LLM outputs introduces a critical trilemma: balancing advertiser payoffs, platform revenue, and user experience. Existing methods, such as prompt injection or rigid position slots, disrupt semantic coherence and lack a parametric framework for independent control, rendering rigorous mechanism design intractable. To bridge this gap, we introduce Neuron Auctions, a novel paradigm that shifts the auction object from the surface text space to the LLM's internal representations. Leveraging mechanistic interpretability, we identify brand-specific feed-forward network (FFN) neurons and demonstrate that competing brands activate within approximately orthogonal subspaces. This near-perfect independence allows us to define continuous, disentangled intervention budgets (specifically, neuron counts and amplification factors) as auctionable commodities. Building on this computational carrier, we design a continuous menu-based auction mechanism that naturally guarantees strategy-proofness and optimizes revenue for the platform. By explicitly incorporating a user utility penalty into the platform's optimization objective, our framework dynamically prices out overly aggressive interventions. Extensive experiments demonstrate that Neuron Auctions effectively preserve natural discourse quality while achieving an optimal alignment between commercial incentives and user satisfaction.