Simplified mechanisms with an application to sponsored-search auctions
AbstractA mechanism can be simplified by restricting its message space. If the restricted message spaces satisfy a certain "outcome closure property," then the simplification is "tight": for every [epsilon][greater-or-equal, slanted]0, any [epsilon]-Nash equilibrium of the simplified mechanism is also an [epsilon]-Nash equilibrium of the unrestricted mechanism. Prominent auction and matching mechanisms are tight simplifications of mechanisms studied in economic theory and often incorporate price-adjustment features that facilitate simplification. The generalized second-price auction used for sponsored-search advertising is a tight simplification of a series of second-price auctions that eliminates the lowest revenue equilibrium outcomes and leaves intact only higher revenue equilibria.
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Bibliographic InfoArticle provided by Elsevier in its journal Games and Economic Behavior.
Volume (Year): 70 (2010)
Issue (Month): 1 (September)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/622836
Sponsored search Generalized second-price auctions Mechanism design;
Other versions of this item:
- Paul Milgrom, 2008. "Simplified Mechanisms with an Application to Sponsored-Search Auctions," Discussion Papers 08-013, Stanford Institute for Economic Policy Research.
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
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