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Online Ad Auctions: An Experiment

Author

Listed:
  • Kevin McLaughlin

    (Economic Science Institute, Chapman University)

  • Daniel Friedman

    (Economics Department, University of California Santa Cruz)

Abstract

A human subject laboratory experiment compares the real-time market performance of the two most popular auction formats for online ad space, Vickrey-ClarkeGroves (VCG) and Generalized Second Price (GSP). Theoretical predictions made in papers by Varian (2007) and Edelman, et al. (2007) seem to organize the data well overall. Efficiency under VCG exceeds that under GSP in nearly all treatments. The difference is economically significant in the more competitive parameter configurations and is statistically significant in most treatments. Revenue capture tends to be similar across auction formats in most treatments.

Suggested Citation

  • Kevin McLaughlin & Daniel Friedman, 2016. "Online Ad Auctions: An Experiment," Working Papers 16-05, Chapman University, Economic Science Institute.
    • Handle: RePEc:chu:wpaper:16-05
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    References listed on IDEAS

    as
    1. Benny Moldovanu & Aner Sela, 2001. "The Optimal Allocation of Prizes in Contests," American Economic Review, American Economic Association, vol. 91(3), pages 542-558, June.
    2. Oprea, Ryan & Henwood, Keith & Friedman, Daniel, 2011. "Separating the Hawks from the Doves: Evidence from continuous time laboratory games," Journal of Economic Theory, Elsevier, vol. 146(6), pages 2206-2225.
    3. Hal R. Varian & Christopher Harris, 2014. "The VCG Auction in Theory and Practice," American Economic Review, American Economic Association, vol. 104(5), pages 442-445, May.
    4. McLaughlin, Kevin & Friedman, Daniel, 2016. "Online ad auctions: An experiment," Discussion Papers, Research Professorship Market Design: Theory and Pragmatics SP II 2016-501, WZB Berlin Social Science Center.
    5. Falk, Armin & Szech, Nora, 2016. "Pleasures of skill and moral conduct," Discussion Papers, Research Unit: Economics of Change SP II 2016-301, WZB Berlin Social Science Center.
    6. Simon, Leo K & Stinchcombe, Maxwell B, 1989. "Extensive Form Games in Continuous Time: Pure Strategies," Econometrica, Econometric Society, vol. 57(5), pages 1171-1214, September.
    7. Tilman B?rgers & Ingemar Cox & Martin Pesendorfer & Vaclav Petricek, 2013. "Equilibrium Bids in Sponsored Search Auctions: Theory and Evidence," American Economic Journal: Microeconomics, American Economic Association, vol. 5(4), pages 163-187, November.
    8. Benjamin Edelman & Michael Ostrovsky & Michael Schwarz, 2007. "Internet Advertising and the Generalized Second-Price Auction: Selling Billions of Dollars Worth of Keywords," American Economic Review, American Economic Association, vol. 97(1), pages 242-259, March.
    9. Paul Milgrom, 2009. "Assignment Messages and Exchanges," American Economic Journal: Microeconomics, American Economic Association, vol. 1(2), pages 95-113, August.
    10. Michael Ostrovsky & Michael Schwarz, 2023. "Reserve Prices in Internet Advertising Auctions: A Field Experiment," Journal of Political Economy, University of Chicago Press, vol. 131(12), pages 3352-3376.
    11. Varian, Hal R., 2007. "Position auctions," International Journal of Industrial Organization, Elsevier, vol. 25(6), pages 1163-1178, December.
    12. Emiko Fukuda & Yoshio Kamijo & Ai Takeuchi & Michiharu Masui & Yukihiko Funaki, 2013. "Theoretical and experimental investigations of the performance of keyword auction mechanisms," RAND Journal of Economics, RAND Corporation, vol. 44(3), pages 438-461, September.
    13. Roth, Alvin E & Vande Vate, John H, 1990. "Random Paths to Stability in Two-Sided Matching," Econometrica, Econometric Society, vol. 58(6), pages 1475-1480, November.
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    Cited by:

    1. McLaughlin, Kevin & Friedman, Daniel, 2016. "Online ad auctions: An experiment," Discussion Papers, Research Professorship Market Design: Theory and Pragmatics SP II 2016-501, WZB Berlin Social Science Center.
    2. Bae, Jinsoo & Kagel, John H., 2019. "An experimental study of the generalized second price auction," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 44-68.
    3. Pengfei Liu, 2021. "Balancing Cost Effectiveness and Incentive Properties in Conservation Auctions: Experimental Evidence from Three Multi-award Reverse Auction Mechanisms," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 78(3), pages 417-451, March.
    4. Greve, T. & Pollitt, M., 2016. "A future auction mechanism for distributed generation," Cambridge Working Papers in Economics 1672, Faculty of Economics, University of Cambridge.

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    More about this item

    Keywords

    Laboratory Experiments; Auction; Online Auctions; Advertising;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • M3 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising

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