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Position Auctions with Consumer Search

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  • Susan Athey
  • Glenn Ellison

Abstract

This paper examines a model in which advertisers bid for "sponsored-link" positions on a search engine. The value advertisers derive from each position is endogenized as coming from sales to a population of consumers who make rational inferences about firm qualities and search optimally. Consumer search strategies, equilibrium bidding, and the welfare benefits of position auctions are analyzed. Implications for reserve prices and a number of other auction design questions are discussed.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15253.

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Date of creation: Aug 2009
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Handle: RePEc:nbr:nberwo:15253

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References

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  1. Benjamin Edelman & Michael Ostrovsky & Michael Schwarz, 2005. "Internet Advertising and the Generalized Second Price Auction: Selling Billions of Dollars Worth of Keywords," NBER Working Papers 11765, National Bureau of Economic Research, Inc.
  2. Lawrence M. Ausubel & Peter Cramton, 2004. "Auctioning Many Divisible Goods," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 480-493, 04/05.
  3. Mobius, Markus & Fudenberg, Drew & Ellison, Glenn, 2004. "Competing Auctions," Scholarly Articles 3043414, Harvard University Department of Economics.
  4. Glenn Ellison & Alexander Wolitzky, 2009. "A Search Cost Model of Obfuscation," NBER Working Papers 15237, National Bureau of Economic Research, Inc.
  5. Peter Cramton & Yoav Shoham & Richard Steinberg, 2007. "An Overview of Combinatorial Auctions," Papers of Peter Cramton 07oca, University of Maryland, Department of Economics - Peter Cramton, revised 2007.
  6. Demange, Gabrielle & Gale, David & Sotomayor, Marilda, 1986. "Multi-Item Auctions," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 863-72, August.
  7. Glenn Ellison & Sara Fisher Ellison, 2004. "Search, Obfuscation, and Price Elasticities on the Internet," NBER Working Papers 10570, National Bureau of Economic Research, Inc.
  8. Chris M. Wilson, 2008. "Ordered Search and Equilibrium Obfuscation," Economics Series Working Papers 401, University of Oxford, Department of Economics.
  9. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
  10. Varian, Hal R., 2007. "Position auctions," International Journal of Industrial Organization, Elsevier, vol. 25(6), pages 1163-1178, December.
  11. Börgers, Tilman & Cox, Ingemar & Pesendorfer, Martin & Petricek, Vaclav, 2008. "Equilibrium Bids in Sponsored Search Auctions: Theory and Evidence," MPRA Paper 29125, University Library of Munich, Germany.
  12. Emir Kamenica, 2008. "Contextual Inference in Markets: On the Informational Content of Product Lines," American Economic Review, American Economic Association, vol. 98(5), pages 2127-49, December.
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Citations

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Cited by:
  1. Lianos, I. & Motchenkova, E., 2012. "Market dominance and quality of search results in the search engine market," Discussion Paper 2012-036, Tilburg University, Tilburg Law and Economic Center.
  2. Alexandre de Cornière & Romain De Nijs, 2013. "Online Advertising and Privacy," Economics Series Working Papers 650, University of Oxford, Department of Economics.
  3. Pollock, R., 2009. "Is Google the next Microsoft? Competition, Welfare and Regulation in Internet Search," Cambridge Working Papers in Economics 0921, Faculty of Economics, University of Cambridge.
  4. Fershtman, Chaim & Fishman, Arthur & Zhou, Jidong, 2013. "Search and Categorization," MPRA Paper 53166, University Library of Munich, Germany.
  5. Hitoshi Matsushima, 2012. "Optimal Multiunit Exchange Design," CARF F-Series CARF-F-279, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  6. Mark Armstrong & John Vickers & Jidong Zhou, 2008. "Prominence and Consumer Search," Economics Series Working Papers 379, University of Oxford, Department of Economics.
  7. Etro, Federico, 2013. "Advertising and search engines. A model of leadership in search advertising," Research in Economics, Elsevier, vol. 67(1), pages 25-38.
  8. Berman, Ron & Katona, Zsolt, 2010. "The Role of Search Engine Optimization in Search Rankings," MPRA Paper 20129, University Library of Munich, Germany.
  9. Zhou, Jidong, 2011. "Ordered search in differentiated markets," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 253-262, March.
  10. Hitoshi Matsushima, 2012. "Optimal Multiunit Exchange Design with Single-Dimensionality," CARF F-Series CARF-F-292, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo, revised Sep 2012.
  11. Alexandre de Cornière & Greg Taylor, 2013. "Integration and Search Engine Bias," Economics Series Working Papers 651, University of Oxford, Department of Economics.
  12. Alexandre de Cornière, 2013. "Search Advertising," Economics Series Working Papers 649, University of Oxford, Department of Economics.
  13. Roberto Burguet & Ramon Caminal & Matthew Ellman, 2013. "In Google we trust?," UFAE and IAE Working Papers 935.13, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC), revised 12 Feb 2014.
  14. White, Alexander, 2013. "Search engines: Left side quality versus right side profits," International Journal of Industrial Organization, Elsevier, vol. 31(6), pages 690-701.
  15. Chen, Yongmin & Zhang, Tianle, 2013. "Entry and Welfare in Search Markets," MPRA Paper 52241, University Library of Munich, Germany.
  16. Nicolás Figueroa & Vasiliki Skreta, 2011. "Optimal allocation mechanisms with single-dimensional private information," Review of Economic Design, Springer, vol. 15(3), pages 213-243, September.
  17. Zhou, Jidong, 2009. "Prominence and Consumer Search: The Case With Multiple Prominent Firms," MPRA Paper 12554, University Library of Munich, Germany.

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